A foreign company employing staff in the United Kingdom now faces a significantly revised employment law environment. Changes to UK employment legislation – effective in 2025 and carrying through into 2026 – alter obligations around dismissal notice, employment contract terms, and worker status classification. Businesses that do not adapt risk tribunal claims, regulatory penalties from HMRC (His Majesty's Revenue and Customs), and reputational damage with UK-based staff.
Updated UK employment legislation, effective from April 2025 onward, strengthens individual worker rights, expands the scope of day-one rights, and tightens the procedural requirements governing termination procedure. Foreign employers with even a single UK-based worker are subject to these rules in full. Compliance review and employment contract updates must be completed before the applicable trigger dates to avoid statutory liability.
This alert summarises what has changed, which businesses are directly affected, and the five immediate actions your organisation should take now.
What has changed – the regulatory development and effective dates
UK employment law has undergone a series of staged amendments under revised employment legislation passed in 2024 and taking effect across 2025. The changes cover several distinct areas.
Day-one unfair dismissal rights. The qualifying period for unfair dismissal protection, previously set at two years of continuous employment, is being removed in stages. Once fully in force, workers gain protection against unfair dismissal from their first day of employment. This fundamentally changes how foreign employers must approach probationary periods, dismissal notice, and termination procedure for new hires.
Written statement requirements. The obligation to provide a written employment contract – or at minimum a written statement of particulars – has been strengthened. Employers must now issue this document on or before the first day of work. Previously, a two-month window applied. A failure to comply can be cited in Employment Tribunal proceedings and may attract a financial award even where no substantive claim is made.
Worker status and social security classification. HMRC has issued updated guidance on worker status determinations. The guidance affects companies using contractor arrangements or hybrid working models. Misclassifying a worker as self-employed. where the actual relationship is one of employment or worker status. exposes the employer to arrears of social security contributions. Holiday pay. Additionally, national minimum wage obligations, potentially running back several years.
Collective agreement and information obligations. Businesses employing 50 or more workers in the UK are now subject to revised thresholds triggering consultation obligations under collective agreement rules. The threshold for triggering information and consultation rights has been reduced. Foreign groups should assess whether their combined UK headcount, including staff employed through subsidiaries, meets the revised threshold.
Flexible working as a default right. Employees now have a right to request flexible working arrangements from day one. Employers must respond within two months and provide written reasons for any refusal. A pattern of unexplained refusals can form part of a broader constructive dismissal claim before the Employment Tribunal or, on appeal. Before the Employment Appeal Tribunal (EAT) and ultimately the Supreme Court (the UK's apex court on employment matters).
Who is affected – threshold criteria and business categories
These changes apply to any employer with workers legally classified as employed or as workers under UK employment legislation – regardless of where the employer entity is incorporated or registered. A foreign company does not avoid UK employment obligations simply because its headquarters are outside the UK.
The following business categories face the most direct and immediate exposure:
- Foreign companies with a UK branch, subsidiary, or registered office at Companies House (the UK's official company register) that employ UK-based staff directly.
- International groups using secondment arrangements or service agreements to place personnel in the UK, where those individuals meet the legal test for worker or employee status.
- Technology and professional services firms engaging UK contractors under arrangements that may be reclassified as employment by HMRC or the Employment Tribunal.
- Financial services businesses regulated by the FCA (Financial Conduct Authority) – formerly operating under the legacy regime overseen by its predecessor, the FSA (Financial Services Authority) – which must align employment practices with conduct rules for certified persons.
- Companies with 50 or more UK workers in aggregate across group entities, triggering the revised collective agreement consultation thresholds.
There is no de minimis exemption for small foreign employers. A company with two UK employees faces the same day-one unfair dismissal exposure as a company with two hundred.
For a preliminary review of your UK employment compliance position, email us at info@ferrazwhitmore.com.
What to do now – immediate actions and compliance timeline
The window for remediation is narrowing. Employers that have not yet acted should treat the following as priority tasks.
1. Audit all UK employment contracts. Review every existing employment contract against the updated written statement requirements. Identify contracts that were issued after the commencement of employment, that omit required particulars, or that contain probationary period clauses inconsistent with the new day-one dismissal protection rules. Update contracts before any new hire commences.
2. Review worker and contractor classifications. Map every individual providing services in the UK against the current HMRC worker status tests. Where there is material doubt about classification, obtain a formal assessment. The cost of reclassification – including social security arrears and holiday pay – is substantially higher than the cost of early correction. Engaging a specialist employment law team in the United Kingdom at this stage is strongly advisable.
3. Establish a flexible working request process. Implement a written procedure for handling flexible working requests. The procedure must include a defined response timeline and a framework for documenting legitimate business reasons for refusal. Absent a documented process, refusals are difficult to defend before a tribunal.
4. Assess collective consultation thresholds. Count all UK workers employed across the group – including those employed by subsidiaries registered at Companies House. If the combined headcount meets or approaches the revised threshold for collective agreement obligations, take legal advice on information and consultation requirements before restructuring, redundancy, or any significant change to working conditions.
5. Align HMRC reporting with updated social security obligations. Confirm that payroll, PAYE, and national insurance reporting through HMRC accurately reflects the employment status of all UK workers. Where corrections are required, a voluntary disclosure approach typically results in a more favourable outcome than a reactive response to an HMRC inquiry. Foreign employers managing broader corporate law obligations in the United Kingdom should coordinate employment and corporate compliance reviews simultaneously.
International businesses operating across multiple European jurisdictions should also note that parallel employment law reforms are under way in other markets. Our separate alert on employment regulation changes in Portugal addresses comparable compliance obligations affecting employers in that jurisdiction.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising business clients across 46 jurisdictions. Our employment law practice supports foreign employers managing UK workforce obligations – from employment contract drafting and worker status assessments to termination procedure advice and Employment Tribunal defence. We combine Portuguese civil law expertise with English common law tradition to deliver cross-border solutions for international businesses operating in the United Kingdom and across Europe. Our attorneys have advised on employment and corporate matters before UK regulatory bodies and have guided international clients through HMRC inquiries and collective agreement processes. Engaging a law firm in the United Kingdom market with genuine cross-border experience makes a measurable difference when obligations span multiple legal systems. To discuss your UK employment compliance position, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.