While none of us have got a crystal ball, and events can and do move quickly, what will 2026 look like for SMEs? 

I’ve been speaking to business owners to get their take on how work is changing, what’s happening on the ground, and how shifts in the economy, costs and government policy are affecting their decisions.

With growth currently flatlining, unemployment nudging up, and many still feeling the strain of higher costs and cautious customers, it’s unlikely that 2026 will suddenly feel much easier. However, there is room for cautious optimism and, in the near term, I think most businesses will describe the environment as “tight” rather than “terrible”.

The more encouraging signs are slightly further out. As inflation comes back towards target and interest rates ease off, conditions should gradually become less of a headwind. Over the medium term, living standards and demand will depend on three big things: whether productivity improves, whether the private sector can take over from government spending as the main engine of growth, and how well policy steers the economy and business through that transition. None of that is guaranteed, but there is real upside if businesses are able to invest and work smarter.

My own view is that 2026 will be more of a ‘building year’ than a breakthrough. Not spectacular growth, but a period where well run SMEs quietly strengthen their foundations and put themselves in a good position for the second half of the decade. This means protecting margins, watching cash carefully and investing in productivity: think better data, better systems, and clearer processes. 

Despite a major concession on day one rights to unfair dismissal, the Employment Rights Bill contains sweeping changes to employment law. 

A huge raft of reforms is due to be phased in by 2027, including new day-one rights to sick pay and paternity leave, stronger protections around pregnancy and family, and more flexible working.

For smaller businesses, that doesn’t just mean more legal jargon to keep up with. It means potentially more risk. Hiring, probation, performance, conduct and training will all need to be handled consistently, with clear standards and better documentation. 

It will be much more important to take an evidence-based approach - which means showing how decisions were made, what conversations took place and what support was offered along the way, rather than relying on a few notes and emails if something ends up in dispute. 

At the same time, most SMEs are still under pressure to keep overheads down, with rising wage floors and other employment costs keeping margins tight. That’s where I expect technology to play a bigger supporting role: not in taking over roles but by providing powerful tools that automate routine tasks and free staff up for more important work. Think of the time and effort saved, when contracts, work schedules, leave, performance notes, training records and more are all captured in one place and easy to retrieve when needed. 

To my mind, the organisations that cope best with this new landscape will be the ones that quietly tighten up their people processes, make good record-keeping part of everyday work and use reliable systems to reduce the admin burden rather than adding to it.

Ways of Working and Culture

I’m seeing many teams settling into their own version of hybrid or flexible working, although the details vary a lot between businesses. Some founders would like people back in the office more often, but most also recognise that flexibility is now part of what makes them attractive as an employer. 

The real shift is towards clarity: when people are expected to be available, what ‘being a team’ looks like when you’re not all in the same place, and how performance is judged when you can’t see who’s still at their desk at 7pm.

At the same time, digital tools and AI are raising expectations about speed and responsiveness. That can be helpful, but it also risks making people feel like they need to be ‘always on’. 

The cultural challenge for 2026 will be balancing those higher performance expectations with a pace that people can sustain: clear priorities, honest conversations about what’s realistic, and realistic goals. 

I’m expecting 2026 to continue the move away from one big annual fortnight in the sun towards more personal, ‘patchwork’ time off. 

Long weekends, mid-week breaks, quieter off-season trips and holidays built around interests or family needs are all becoming more common. After a tough few years, many people are looking for rest, headspace and time with the right people, rather than just ticking off destinations. 

For smaller employers, that tends to show up as more individual patterns of leave and extra negotiation about who can be away when, especially around school holidays and big cultural or sporting events. Personally, I’m more Wimbledon than Glastonbury, more Taylor Swift than Metallica - but whatever your preferences, the point is the same: everyone values their time off differently, and it can be a real boost when those requests can be accommodated.

From what I’m seeing, teams cope best when there’s a shared understanding that annual leave is there to be used, and when the process is handled with fairness and transparency about who’s off, when. And teams really do love having easier ways to request and approve leave. 

2026 is likely to be a demanding but steady year for most smaller businesses. The economic backdrop is still challenging, employment rights are changing, expectations around flexibility and performance are rising, and people are more protective than ever of their time away from work.

What employers crave is stability, so it’s a year to get the basics right: clear standards, fair treatment, good records, sensible use of technology and a culture where people can do their best work without burning out.

Whatever the next 12 months bring, our focus at WorkSmarter will stay the same: listening to what you’re dealing with day to day, continuing to innovate our products to support your teams in this changing landscape, and doing everything we can to remain an exceptional partner. 

From all of us at WorkSmarter, wishing you a great Christmas and a happy,  successful 2026. Get in touch.