SMEs brace for regulatory shake-up and talent shortages in 2026

- More than half (53%) of SME businesses concerned at their ability to adapt to employment legislation changes
- Shortage of skilled applicants the top hiring challenge SME employers expect to face in 2026 (61%)



New data from international recruitment firm Robert Half, shows rising growing concerns among Small & Medium Enterprises (SMEs) as the Employment Rights Act moves closer to implementation following Royal Assent.



According to the recruiter’s latest research, while 53% of SMEs identified adapting to changing labour laws and compliance requirements as one of their top hiring challenges for 2026, this concern did not feature among the top five challenges for mid-sized or large organisations.



The findings underscore the disproportionate impact of regulatory complexity on smaller businesses, which often lack the dedicated compliance resources available to larger firms. As new employment legislation and evolving labour standards take effect, SMEs are under pressure to update policies, contracts, and processes while continuing to compete for talent in a tight market.



Talent pressures mounting

Beyond compliance, SMEs are grappling with a competitive talent landscape. A shortage of skilled applicants (61%) and difficulty attracting candidates with specialised or niche skills (59%) remain pressing issues. Cultural fit is another priority, with 57% of SMEs citing alignment with company culture as a key challenge. Additionally, 53% report intense competition for remote and global talent as flexible work models gain widespread adoption.



Strategic responses to attract talent

To overcome these hurdles, SMEs are taking proactive steps to strengthen their appeal to candidates. The majority (82%) are investing in employer branding and corporate culture to stand out in a crowded market. Process improvements are also high on the agenda, with 81% streamlining recruitment workflows and 77% increasing transparency through clear salary ranges and defined timelines. Flexible working arrangements are a major draw, with 75% offering hybrid or fully remote options, alongside enhanced perks and benefits to secure top talent.



Matt Weston, Senior Managing Director UK & Ireland at Robert Half, said: “SMEs are now navigating a transformed regulatory landscape, with the Employment Rights Act marking a turning point. While its measures are designed to improve fairness and flexibility for workers, smaller businesses often lack the dedicated compliance teams that larger organisations can rely on. This means adapting to new regulations such as enhanced day-one rights and protections for flexible workers, could feel hard to navigate for some. At the same time, SMEs are competing fiercely for skilled talent in a market where flexibility and transparency matter more than ever. The businesses that succeed will be those that embrace these changes proactively, strengthen their employer brand, and create recruitment processes that are both compliant and candidate-friendly.”



ENDS



Press contact

Vickie Collinge

vickie@bluesky-pr.com

01582 790705



About the research

Data is based on an online survey developed by Robert Half and conducted anonymously by an independent research firm in November 2025. 500 hiring managers in Finance and Accounting, IT, Administrative and Customer Support, Marketing and Creative, and Legal were interviewed. Respondents were drawn from a sample of SMEs, mid-market and large private, publicly listed and public sector organisations across the UK.