The employment risks of scaling hiring by increasing headcount

For many organisations, the instinctive response to rising hiring demand is to increase the internal talent team through hiring on a permanent or contract basis. 

But as employment law evolves, the decision to expand permanent or contractor headcount carries more risk than many organisations realise. 

For businesses experiencing fluctuating demand, hiring spikes or uncertain workforce plans, these risks need to be considered before additional talent headcount is added.

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Why this matters now

UK employment law is changing materially.

The government’s Plan to Make Work Pay and Employment Rights Act 2025 are being introduced in phases across 2026 and 2027, with the government stating that the reforms are designed to extend employment protections to more workers. The official implementation page was last updated on 15 April 2026, so this is a live and evolving area for employers. 

For employers, the key point is simple:

Adding people into your talent team is becoming a more significant long-term commitment.

That applies to:

• Permanent recruitment hires 
• Fixed-term employees 
• Contractors 
• Interim talent acquisition specialists 
• Workers engaged through agencies or intermediaries 

Each model carries a different type of risk.

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The risk of permanent talent hires

Hiring permanent recruiters or talent leaders can make sense when hiring demand is stable, predictable and long-term.

But where demand is uncertain or driven by a short-term growth spike, permanent headcount introduces structural risk.

1. Fixed cost that remains even when hiring demand changes

Permanent employees create ongoing cost:

• Salary 
• Employer National Insurance 
• Pension contributions 
• Benefits 
• Equipment 
• Management time 
• Training and onboarding 

If hiring demand falls, those costs remain – something of particular relevance for companies hiring after funding, expansion or a short-term growth push. The business may need additional recruitment capacity for six to nine months, but not necessarily a permanent team at that level.

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2. Reduced flexibility as unfair dismissal rules change

At present, employees generally need two years’ service before they can claim ordinary unfair dismissal, unless the dismissal is for an automatically unfair reason or linked to discrimination or another protected right. GOV.UK and Acas both currently describe the two-year qualifying period. 

From 1 January 2027, the qualifying period for ordinary unfair dismissal is due to reduce from two years to six months, and the compensation cap for unfair dismissal is due to be removed. 

That means employers will have a much shorter window to assess whether a permanent hire is the right long-term fit before dismissal risk increases. For talent teams, this matters because hiring demand can change quickly and a recruiter hired into a spike may no longer be required once:

• The hiring plan is complete 
• Funding deployment slows 
• Hiring volume stabilises 
• Business priorities change 
• Internal hiring freezes return 

From 2027, carrying permanent recruitment headcount through uncertainty becomes more complex.

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3. Day-one rights are already expanding

Although unfair dismissal is now moving to a six-month qualifying period rather than day one, several rights have already changed.

From 6 April 2026, the government timeline confirms:

• Day-one paternity leave 
• Day-one unpaid parental leave 
• Statutory Sick Pay changes, including removal of the Lower Earnings Limit and waiting period 
• Strengthened whistleblowing protections relating to sexual harassment 

This increases the importance of proper workforce planning from the outset. It’s not that these rights are negative, but from an employer risk perspective, they make each new permanent hire a more significant commitment from day one.

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4. Redundancy and restructuring risk

If a business builds a permanent talent team to meet temporary demand, it may later need to restructure.

That introduces:

• Consultation requirements 
• Redundancy process risk 
• Potential protective awards in collective redundancy situations 
• Employee relations impact 
• Internal disruption 

The government timeline also confirms that from 6 April 2026, the maximum period of the collective redundancy protective award doubled. 

If hiring demand is uncertain, the business needs to be careful about creating a talent team structure it may later need to unwind.

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The risk of contractor hiring

Contract recruiters can appear to solve the flexibility problem.

They can be brought in quickly to increase capacity and support short-term delivery.

But contractor models carry their own risks, particularly around employment status, tax treatment and IR35.

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1. IR35 and off-payroll working risk

The off-payroll working rules, commonly known as IR35, are designed to ensure that contractors who would be employees if engaged directly pay broadly the same Income Tax and National Insurance as employees. 

For medium and large private sector organisations, the client is usually responsible for determining whether the rules apply when engaging contractors through intermediaries such as personal service companies. GOV.UK confirms that the rules apply to public sector clients and medium and large private or voluntary sector clients. 

A company is generally medium or large for these purposes if it meets two or more of the following:

• Annual turnover of more than £10.2 million 
• Balance sheet total of more than £5.1 million 
• More than 50 employees 

That means many scaling companies may come within scope sooner than expected.

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2. Status determination responsibility

Where the off-payroll rules apply, the client must assess the contractor’s employment status for tax purposes and issue a Status Determination Statement with reasons. GOV.UK states that clients must take reasonable care when making the determination and provide reasons; if they do not, the worker’s Income Tax and National Insurance contributions can become the client’s responsibility. 

This creates real operational risk.

Engaging contractor recruiters is not simply a matter of agreeing a day rate. Businesses need to consider:

• Contract terms 
• Actual working practices 
• Control and supervision 
• Mutuality of obligation 
• Substitution rights 
• Integration into the business 
• Whether the engagement changes over time 

GOV.UK also notes that if working practices change, or a new contract is negotiated, the rules should be rechecked. 

That is particularly relevant in recruitment, where contractors often become deeply embedded in the business.

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3. Contractor status is not always straightforward

A person described as a contractor may not always be genuinely self-employed.

GOV.UK states that a contractor can be:

• Self-employed 
• A worker 
• An employee, for example if working for a client and employed by an agency 

This matters because employment status affects rights and responsibilities.

GOV.UK also makes clear that HMRC may view someone as self-employed for tax purposes even if they have a different status in employment law. Employers are advised to check both tax law and employment law status because misclassification can lead to unpaid tax, penalties or loss of entitlement to benefits. 

This is one of the key risks with contractor-heavy hiring models: the label used in the contract is not enough.

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4. Worker rights risk

Even where someone is not an employee, they may still be a worker.

Workers are entitled to rights including:

• National Minimum Wage 
• Protection against unlawful deductions from wages 
• Statutory minimum paid holiday 
• Rest breaks 
• Working time protections 
• Protection from unlawful discrimination 
• Whistleblowing protection 
• Protection from less favourable treatment if part-time 

This matters when businesses assume contractor arrangements sit entirely outside employment rights.

Depending on the relationship and working practices, that may not be the case.

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Why this risk is higher for talent and recruitment roles

The risk is particularly acute when engaging recruiters or talent acquisition specialists because of how the work is delivered.

A contractor recruiter may:

• Use the company’s ATS 
• Represent the employer brand 
• Attend internal meetings 
• Work to internal hiring priorities 
• Report to a Talent Director or HR leader 
• Follow internal processes 
• Work closely with hiring managers 
• Be part of the day-to-day operating rhythm 

Those features can make the arrangement feel much closer to employment than a clearly outsourced service.

This does not automatically mean the contractor is inside IR35 or has employment rights, but it does mean the engagement needs careful assessment and documentation.

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The practical risks of building capacity through perm and contractor hires

Permanent hiring risks

• Long-term fixed cost 
• Reduced flexibility as dismissal protection expands 
• Greater exposure from 2027 when unfair dismissal rights move to six months 
• Cost and process risk if restructuring is needed 
• Management burden 
• Risk of overcapacity once hiring demand falls 

Contractor hiring risks

• IR35 assessment obligations 
• Tax and National Insurance exposure if status is wrong 
• Need for Status Determination Statements 
• Ongoing obligation to reassess if working practices change 
• Worker or employment rights risk depending on status 
• Knowledge loss when contractors leave 
• Inconsistent quality and process ownership 

Combined risk

Many companies use both models at once: permanent recruiters, contractors and agencies.

That can create:

• Fragmented ownership 
• Duplicated effort 
• Poor visibility of true cost 
• Inconsistent candidate experience 
• Compliance complexity 
• Difficulty scaling down cleanly 

This is exactly where hiring models can become expensive and difficult to manage.

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Why planned legislation changes the calculation

Employment protections are increasing, and employers will need to plan more carefully before adding headcount.

Key confirmed or scheduled changes include:

Date	Change	Employer relevance
18 February 2026	Increased protections around industrial action and related trade union changes	Broader employee relations risk environment
6 April 2026	Day-one paternity leave and unpaid parental leave	More rights apply immediately from employment start
6 April 2026	SSP changes: removal of Lower Earnings Limit and waiting period	Increased day-one/early employment cost exposure
6 April 2026	Collective redundancy protective award maximum doubled	Higher risk if restructuring is mishandled
No earlier than October 2026	Employment tribunal time limits	Potentially longer claim exposure window
1 January 2027	Ordinary unfair dismissal qualifying period reduced to six months; compensation cap removed	Earlier dismissal risk and potentially greater financial exposure
2027	Regulation of umbrella companies, enhanced dismissal protection for pregnant women and new mothers, guaranteed hours rights and other reforms	Further complexity across worker engagement models

These dates come from the government’s updated implementation timeline, last updated 15 April 2026. 

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What this means for scaling companies

For startups, scaleups and growth businesses, this creates a difficult planning problem.

A business may need to increase hiring capacity quickly after:

• Funding 
• Market expansion 
• Product launch 
• New leadership appointment 
• Transformation project 
• Rapid commercial growth 

But the demand may not be permanent.

It might require:

• Two additional recruiters for six months 
• A short-term sourcing team 
• Hiring manager enablement 
• ATS optimisation 
• Reporting and delivery oversight 
• A managed team that can scale down later 

In that context, building permanent or contractor headcount can introduce risk at exactly the point where flexibility is most valuable.

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A more controlled alternative

For businesses that need hiring capacity without increasing employment exposure, a structured RPO model can reduce risk.

The key difference is that the organisation is not simply adding individuals into the business. It is accessing a managed hiring capability with:

• Defined scope 
• Delivery ownership 
• Reporting 
• Process control 
• Embedded recruiters where needed 
• Scalable capacity 
• Less long-term headcount commitment 

This does not remove every obligation from the client, and businesses should still take legal and tax advice where appropriate. But it can reduce the need to build permanent or contractor-heavy recruitment teams in response to temporary or uncertain demand.

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Where Troi fits

Troi’s RPO models are designed for companies that need to increase hiring capacity without taking on unnecessary employment risk.

Growth RPO is suited to hiring spikes, post-funding scaleups and periods where demand increases quickly but long-term structure is still evolving.

Project RPO is suited to defined hiring initiatives with a clear scope, timeline and outcome.

Embedded RPO is suited to businesses that need a fully managed, ongoing hiring function without building the entire capability internally.

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Takeaway

As employment protections expand and contractor compliance remains complex, organisations need to think carefully before solving short-term hiring pressure with long-term structural commitments.

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