Restructures and changing terms in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
Changing an employee's terms and conditions during a restructure is one of the more legally sensitive things a UK employer can do. Get it right and you reshape your business; get it wrong and you face grievances, tribunal claims or costly settlements.
What "changing terms" actually means
Employment contracts set out the agreed terms between employer and employee. Those terms can be express (written down) or implied (customary practices that have become contractual over time). Either way, you cannot simply alter them unilaterally.
Common changes during a restructure include:
- Reducing pay, hours or benefits
- Changing job titles, reporting lines or responsibilities
- Relocating employees to a different site
- Moving from commission-based to salary pay structures
- Removing contractual bonuses or allowances
Some changes may look minor but carry real legal weight. A long-standing custom of paying a Christmas bonus, for example, can become an implied contractual term — meaning removing it requires the same process as changing any other term.
The three main routes to changing terms
Mutual agreement is always the cleanest route. Consult employees, explain the business rationale clearly, and ask for written consent. Many employees will agree to reasonable changes if they understand why the change is necessary and what they gain or protect in return. Document the agreement formally and issue a written variation to the contract.
Contractual flexibility clauses allow some changes without fresh consent, provided the clause is drafted broadly enough and the change falls within it. A mobility clause, for instance, may allow you to require a move to another site. However, courts and tribunals read flexibility clauses narrowly — you cannot rely on a vague clause to justify a material reduction in pay.
Fire and rehire (formally called dismissal and re-engagement) is the most contentious route. You dismiss the employee on their existing terms and offer immediate re-engagement on the new ones. It is legally possible, but the Employment Rights Act 2025 has significantly tightened the rules around it. A new statutory Code of Practice applies, and tribunals can uplift any compensation awards where an employer has not followed it. This route should be a genuine last resort, not a negotiating lever.
Collective consultation obligations
If you are considering dismissing 20 or more employees within 90 days — whether through redundancy or fire and rehire — you must collectively consult. This means:
- Notifying the Redundancy Payments Service (form HR1) before consultation begins
- Consulting with recognised trade unions or elected employee representatives
- Allowing a minimum consultation period (45 days where 100 or more dismissals are proposed; 30 days for 20–99)
Failing to collectively consult can result in a protective award of up to 90 days' actual pay per affected employee. This is not a nominal risk — enforcement is active and tribunal claims in this area are common.
Even where numbers fall below the threshold, individual consultation is still required before any dismissal. There is no legal shortcut.
Pay, tax and payroll implications
When terms change mid-year, your payroll setup needs updating promptly. A few practical points:
Salary reductions take effect from the date agreed in writing. If you process a reduced salary before the employee has formally agreed, you risk an unlawful deduction from wages claim under the Employment Rights Act 1996, regardless of the restructure rationale.
Changes to benefits — removing a company car, health cover or salary sacrifice arrangements — may alter National Insurance and income tax liabilities. Employer NI runs at 13.8% on earnings above the secondary threshold, so restructuring remuneration packages can have a material effect on your employer NI bill. Always model the payroll impact before finalising any new terms.
Pension auto-enrolment must be maintained at or above the minimum of 3% employer contribution on qualifying earnings. You cannot reduce pension contributions below the statutory floor without re-enrolment obligations and potentially triggering worker complaints to The Pensions Regulator.
RTI reporting must reflect the new terms from the correct effective date. If a change moves an employee between pay frequencies or alters qualifying earnings bands, update your payroll software before the next Full Payment Submission to HMRC.
Protecting yourself from tribunal risk
A few habits reduce risk meaningfully:
- Write down the business rationale before you start consulting — you will need it if challenged
- Consult genuinely, not as a tick-box exercise; consider each counter-proposal seriously
- Give reasonable notice of any change, even where the contract technically allows shorter notice
- Issue written confirmation of agreed changes and retain signed copies
- Take legal advice early where numbers are significant or the changes are material
The Employment Rights Act 2025 has strengthened day-one employment rights, which means newer employees have more protection than they did under previous rules. That shifts the risk calculation, particularly for businesses that previously relied on shorter service thresholds as a buffer.
This article provides general information only and does not constitute legal advice. For your specific situation, consult a qualified employment lawyer.
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