Business Restructuring is Changing – Why SME Employers Need to Start Planning Now

Over the past year, I have noticed a significant shift in the conversations I am having with clients.

Not so long ago, most discussions centred around recruitment, retaining talented employees and supporting business growth. Today, whilst those conversations still happen, they are increasingly being replaced by a different question altogether.

“Does our business still have the right structure?”

Interestingly, very few employers begin by asking about redundancy. Instead, they talk about rising employment costs, increasing pressure on profit margins, advances in technology, changing customer expectations or the simple feeling that the business has evolved but the organisational structure has not kept pace.

That, in my experience, is exactly where every restructuring conversation should begin.

Restructuring is not simply about reducing headcount. In fact, many successful restructures never result in redundancies at all. At its heart, restructuring is about ensuring that the business is organised in a way that supports its future objectives. Sometimes that means creating new roles. Sometimes it means redesigning existing ones. Occasionally it means removing roles that are no longer required. Every business will be different, but the starting point should always be the commercial needs of the organisation rather than the individuals within it.

This is becoming increasingly important because the legal landscape is also changing. As the Employment Rights Act 2025 continues to be implemented over the next eighteen months, employers will need to be even more confident that their decisions are commercially sound, procedurally fair and capable of withstanding scrutiny. Those businesses that continue to approach restructuring in the same way they have for the last decade may find that the risks have increased considerably.

Restructuring should be driven by strategy, not circumstance

One of the biggest misconceptions I encounter is that restructuring only happens when a business is struggling financially.

That simply is not true.

Some of the most successful businesses I work with regularly review their organisational structure. They do so because they recognise that businesses evolve. Customer expectations change, technology develops, new opportunities emerge and different skills become important. The structure that worked perfectly three years ago may no longer be the structure that best supports the business today.

Artificial intelligence is a perfect example. Many administrative tasks that previously required significant manual input can now be completed more efficiently using technology. That does not necessarily mean employees become less valuable. Far from it. It creates an opportunity to redesign roles so people spend more time on work that genuinely adds value to customers and the organisation.

Equally, many businesses have grown organically over a number of years. New positions have been created as immediate needs arose, responsibilities have gradually shifted between employees and managers have absorbed additional duties without anyone stepping back to consider whether the overall structure still makes sense.

It is often only when rising employment costs begin to place pressure on profitability that business owners pause and ask whether the organisation is still operating as efficiently as it could.

That question is not only sensible; it is good business management.

How do you know when it is time to review your organisational structure?

There is rarely one defining moment that tells an employer it is time to restructure. More often, it is a combination of smaller indicators that gradually become impossible to ignore.

Perhaps wage costs have increased significantly without a corresponding increase in revenue. Maybe different departments have begun carrying out similar tasks, creating duplication that has developed over time rather than by design. It may be that managers feel permanently overwhelmed whilst other parts of the business have spare capacity. Alternatively, the business strategy may have changed entirely, with new products, different customers or greater reliance on technology meaning that existing roles no longer reflect how work is actually carried out.

I also see businesses becoming increasingly reactive in their decision making. A new role is created because someone resigns. Additional responsibilities are allocated simply because another employee has capacity. Reporting lines become more complicated as the business grows. Individually, these decisions often appear entirely reasonable. Collectively, however, they can create an organisational structure that is unnecessarily complex, expensive and difficult to manage.

None of these situations automatically lead to redundancy. They should, however, prompt employers to take a step back and ask whether the current structure genuinely reflects the future needs of the business.

The legal landscape is changing

Alongside these commercial pressures, employers also need to be aware of significant changes to employment law.

The Employment Rights Act 2025 represents one of the most substantial reforms to workplace legislation for many years. Whilst different provisions will come into force at different times, one of the most significant changes is expected from January 2027, when employees will acquire unfair dismissal protection after six months’ service rather than the current two-year qualifying period. At the same time, the statutory cap on unfair dismissal compensation is expected to be removed.

For employers, these changes fundamentally alter the level of risk attached to dismissal decisions.

Historically, some businesses have understandably focused on whether an employee had accrued two years’ continuous service before considering the legal implications of dismissal. That approach will become increasingly outdated. Instead, employers will need to ensure that every dismissal decision is supported by a genuine business rationale, a fair process and clear evidence demonstrating why the decision was made.

The organisations that prepare now are likely to find themselves in a much stronger position than those who only begin thinking about these changes once they come into force.

The biggest mistake I see employers make

Having advised employers through countless restructuring exercises over the years, there is one mistake that appears more frequently than any other.

The decision has already been made before consultation even begins.

I completely understand why this happens. Business owners have spent weeks or even months considering their options. By the time employees are informed that their role is at risk, the employer often feels they already know the only sensible outcome.

Unfortunately, that is precisely where difficulties can arise.

Consultation is intended to be meaningful. Employees should have a genuine opportunity to understand the proposals, ask questions, suggest alternatives and influence the outcome. If the process simply confirms a decision that has already been reached, it becomes much harder to demonstrate that the consultation was genuine.

This is often where employers inadvertently create legal risk, despite having entirely legitimate commercial reasons for restructuring.

Is it really redundancy?

Another issue that deserves careful consideration is whether redundancy is actually the correct reason for dismissal.

It is not uncommon for employers to describe a situation as redundancy when, in reality, other factors are driving the decision. Perhaps there are concerns about performance. Relationships have broken down. There has been a change in leadership. Or the business believes an individual no longer fits its future direction.

Those situations may well require action, but they do not necessarily amount to redundancy.

A genuine redundancy exists because the business’s need for employees to carry out work of a particular kind has reduced or ceased. If that is not the real reason, attempting to frame the situation as redundancy can significantly increase legal risk.

Being honest with yourself about what is really driving the decision is often the most important question an employer can ask before any process begins.

Good planning begins long before employees are involved

One piece of advice I give almost every client is remarkably simple.

Do not make your first conversation with the employee your first conversation about the restructure.

The planning stage is where the most important work happens.

This is the point at which employers should carefully document why change is needed, what commercial objectives are being achieved, which roles are genuinely affected, whether alternative positions exist within the organisation and how employees will be consulted.

When this preparation has been completed properly, the process itself usually becomes far more straightforward. More importantly, it demonstrates that decisions have been driven by legitimate business needs rather than personal preference.

Restructuring is about people as much as business

Whilst organisational charts, financial forecasts and business plans are all important, restructuring ultimately affects people.

For employers, that means recognising that employees are unlikely to view change purely through a commercial lens. They are thinking about their livelihood, their future and the uncertainty that naturally accompanies organisational change.

How those conversations are handled often determines whether employees remain engaged and supportive or whether relationships deteriorate unnecessarily.

Being open, honest and respectful throughout the process is not simply good management; it is often the most effective way of reducing conflict and maintaining trust.

Settlement agreements have an important role to play

Many employers mistakenly assume that discussing a settlement agreement somehow indicates failure.

In reality, settlement agreements are often a sensible commercial tool that allows both parties to reach certainty without prolonged dispute. They can provide clarity over financial arrangements, protect confidential business information and enable both employer and employee to move forward with confidence.

Like any HR process, they should be used appropriately and alongside proper legal advice. However, they should not be viewed negatively. In many circumstances, they represent the most pragmatic solution available.

Final thoughts

Business restructuring is no longer something that only happens during periods of financial difficulty. Increasingly, it is becoming part of good business planning.

The organisations that thrive over the coming years are unlikely to be those that simply reduce costs. They will be the businesses that regularly review how work is organised, invest in their people, embrace new technology and ensure their organisational structure reflects where the business is heading rather than where it has been.

Employment law is changing, but the underlying principle remains exactly the same. Good employment decisions begin with good business decisions.

If your business is considering organisational change, redundancy or a wider restructuring exercise, my advice is always the same. Take a step back before taking action. Invest time in planning. Challenge your assumptions. Seek advice early.

From my experience, the businesses that do this almost always make better decisions, reduce legal risk and achieve stronger long-term outcomes for both the organisation and its people.

Having advised SME employers for many years, one thing I have learnt is that employment issues rarely begin when the formal process starts. They begin much earlier, often with a commercial decision that hasn’t yet been viewed through a people lens. The businesses that achieve the best outcomes are almost always those that involve HR before decisions are made, not afterwards. A little planning at the outset almost always saves significant time, cost and stress later on.