The Government has today revealed several amendments it is making to its flagship Employment Rights Bill following consultations with businesses.
Key updates to the legislation, spearheaded by Deputy Prime Minister Angela Rayner and Business Secretary Jonathan Reynolds, include expanding the zero-hour contract ban to agency workers and strengthening statutory sick pay.
Setting out the latest changes, Rayner said: “For too long, millions of workers have been forced to face insecure, low-paid, and irregular work while our economy is blighted by low growth and low productivity.
“We are turning the tide – with the biggest upgrade to workers’ rights in a generation, boosting living standards and bringing with it an upgrade to our growth prospects and the reforms our economy so desperately needs.”
However, while many unions have welcomed the changes, businesses remain concerned about how the sweeping changes could affect them.
According to an impact assessment by the Department for Business and Trade (DBT), the measures included in the bill are expected to cost the UK’s estimated 5.6 million businesses billions.
The Government suggests that the upper estimate for the cost of the measures is around £4.5bn, which it points out comes to around 0.5 per cent of the UK’s £1.3trn annual wage bill.
If you average the costs across all businesses, they come to around £3,000 per company in the UK.
Here are some of the ways that workers could benefits and businesses could be impacted by the workers’ rights reforms:
Benefit to workers: The Employment Rights Bill includes measures allowing workers to claim sick pay from their first day of absence, as well as removing the £123 a week lower-earning minimum.
The DWP has now confirmed that, following its consultation, the rate of statutory sick pay will be set at the lower of either £118.75 or 80 per cent of the employee’s wages.
These changes will be included in amendments to the legislation when it returns to the Commons in the coming weeks.
For example, a part-time worker doing 10 hours a week at an hourly rate of £12.21 — the national minimum wage for over-21s from April 2025 — would earn £122.10 a week.
Under current rules, this employee would not be entitled to statutory sick pay. However, following the planned reforms, they would be entitled to receive £97.68 a week from their employer for the duration of their sickness.
Employees will also benefit financially from the removal of the three-day waiting period for sick pay claims.
If a full-time employee earning £488.40 a week was off sick for two weeks, they would only be entitled to £166.25 from April 2025. Once the waiting period is removed, however, they will be entitled to £237.50 for that 10-day period, an increase of £71.25.
Impact on businesses: According to an impact assessment published by DWP ahead of the consultation on sick pay, the changes could cost businesses £1bn a year.
On average, across all employees, this would be the equivalent of £38 each year for every worker, an increase of £15 compared to the current rules.
The DWP also noted that businesses were likely to incur indirect costs due to the loss of output from more employees, which it estimated would total £36m across the UK.
However, the impact assessment did acknowledge that allowing employees to take sick leave sooner would likely help employees recover quicker, which could boost a business’s overall output.
It also suggested that wider benefits that were difficult to monetise could exist, such as reduced disease transmission, healthier workers, and lower staff turnover.
Right to flexible working
Benefit to workers: Workers already have a right to request flexible working, but their employer can reject it for many reasons ranging from excess cost to an inability to reorganise staff.
The new legislation, however, places a new burden on employers to justify why a flexible working request was rejected. It also sets out provisions for flexible working claims to be referenced in employment tribunals.
Impact on businesses: The Government estimates that businesses will likely have to spend around £7.8m to adjust their systems to reflect the new rules and incur additional admin costs of about £600,000 a year.
However, the official impact assessment suggests that the overall effects will be positive, as employers are not required to disclose individual costs of facilitating flexible working.
In other words, small businesses may have a good reason to reject a request if it is excessively costly to their operations.
The Department for Business and Trade (DBT) also claims that businesses will benefit from improved productivity and worker satisfaction by allowing more employees to work flexibly.
Benefit to workers: The Government is eliminating zero-hour contracts to provide workers with more job security and financial stability, and ministers have also confirmed this ban will include agency workers.
Employees who previously had unpredictable working hours will now receive contracts reflecting their regular work patterns, which would likely be based on the average hours they work over a 12-week period.
This change particularly benefits low-paid workers in retail, hospitality, and social care, where such contracts have been widely used.
Under the reforms, employers who cancel or change a worker’s shift at short notice will also be required to compensate them for the shift. The employee will be entitled to the amount they would have earned on the original shift they had been scheduled for.
Impact on businesses: The DBT estimated last year that banning zero-hour contracts could cost £160m to implement and that the loss of flexibility among the workforce could have a further impact that was “likely to be up to hundreds of millions of pounds”.
The initial cost to all businesses is set to be around £100m, as employers will be required to draw up new contracts and adopt new working patterns. Further costs will then be incurred as the new system is applied to future employees.
DBT estimates that, overall, businesses will be around £2.3m a year worse off as a result of the change due to increased admin costs.
As for providing compensation for cancelled shifts, official impact assessments estimate that this change will directly cost businesses around £320m a year, much of which will be due to the fact that workforce planning isn’t always possible in a lot of sectors.
The Recruitment and Employment Confederation (REC), which represents the sector, has also warned that the change could not “undermine” the flexibility that zero-hour contracts offer some workers.
Day one protection from unfair dismissal
Benefit to workers: Under the changes, the Government will extend unfair dismissal protections to employees from their first day of work, strengthening job security and reducing the risk of arbitrary firings.
Workers will no longer need to complete a two-year period before gaining protection, allowing them to challenge dismissals they believe to be unfair. This change could particularly benefit vulnerable employees who may otherwise be hesitant to assert their rights.
Impact on businesses: The main cost and risk for businesses from this change is the prospect of more employment tribunals if they dismiss a worker.
Though there will be mitigations protecting employers who fire an employee during their probation period, the change will make it easier for any employee to claim unfair dismissal regardless of whether it has occurred.
The official DBT impact assessment for the policy published last year said that, over the next 10 years, UK businesses could spend up to £43.2m more a year due to legal costs and staff turnover.
It also notes that this change could be particularly onerous on small businesses, as they “might be less able to withstand additional costs and might be more impacted by unproductive employee-job matches.”
Benefit to workers: The Government is removing the 26-week waiting period for parental and paternity leave, which aims to help employees balance family responsibilities from the outset of their employment.
The DBT’s official impact assessment states: “The policy is expected to have a positive well-being impact on households with employee parents for those with under one-year tenure.
“Employees with less than one year of employment might also benefit from increased wages if the policy results in higher labour mobility for those workers by removing potential barriers to changing jobs.”
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Read MoreThe Government is also expanding bereavement leave to cover more family members and provides greater emotional and financial support to those experiencing loss, ensuring they do not have to choose between work and grieving their loved ones.
Ministers have also confirmed this week that mothers and their partners will be given the right to two weeks of bereavement leave if they have suffered a pregnancy loss before 24 weeks gestation.
It is estimated that this could benefit around 250,000 expectant mothers in the UK who suffer a miscarriage every year.
Impact on businesses: According to DBT estimates, removing the waiting period for parental leave will cost businesses about £24.7m extra a year.
Small and medium businesses will also be adversely impacted. The impact assessment notes that these companies will likely bear around 35 per cent of the costs despite employing around 29 per cent of employees.
The costs of introducing a right to bereavement leave depend on whether it includes only immediate family or applies to extended family such as grandparents, but they could be anywhere between £21m and £64.2m a year.
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