This month sees some of the most significant changes to UK employment law in decades, with a plethora of reforms being introduced with the aim of strengthening workers’ rights and enhancing employer responsibilities. 

The government’s own analysis predicts this will cost UK business up to £5bn a year, outside of the cost of expected changes to the NIC and tax system. In response, many employers have already “applied the brakes” on recruitment, but is that the right thing to do in a market that still has far more demand than supply? With all indications being that the UK economy is improving, is this meaning that companies are missing opportunities out of fear?

Therefore, whatever the goal of these reforms, and whatever your political persuasion, if you run a business, particularly an SME, you need to know what these changes are, what their real impact is likely to be, and how to manage them effectively. 

The changes (confirmed and expected)

Day-one rights to unfair dismissal protection

One of the most prominent changes is the introduction of unfair dismissal protection from the first day of employment. Under current laws, employees typically need two years of service to claim unfair dismissal, but this threshold will be eliminated. Probationary periods will still exist, but businesses will need to be diligent in how they assess new employees, ensuring they have robust procedures in place to manage performance​.

Banning exploitative zero-hours contracts

The reforms will crack down on exploitative zero-hours contracts, which often leave workers with little financial security. Employees will be entitled to contracts that reflect their actual working hours, providing greater predictability and stability. This change is particularly significant for sectors like retail and hospitality, where zero-hours contracts are prevalent​.

Crackdown on contracting

The definition of contracting will be tightened to categorise more people as employees rather than independent contractors. This will increase their access to, and the employer’s liability for, paid holidays, pensions and sick leave. 

Flexible working as a right

Flexible working arrangements will become a default right for employees, meaning workers can request flexible hours from their first day of employment. Employers will only be able to deny such requests if they can demonstrate that the arrangement is impractical for their business operations​.

Fire and rehire restrictions

Labour plans to curtail the controversial practice of “fire and rehire,” where employers dismiss staff only to rehire them under less favourable terms. This practice, commonly used during restructuring or cost-cutting measures, will now face tighter regulations.

Tipping and service charge legislation

The Employment (Allocation of Tips) Act 2023, which came into effect on 1 October 2024, requires businesses to distribute 100% of tips, gratuities, and service charges to employees without any deductions, except for tax purposes. Employers must maintain a clear written policy on tip distribution and keep records for up to three years​.

Worker protection against harassment

Under the Worker Protection (Amendment of the Equality Act 2010) Act, employers will be held legally accountable for preventing workplace harassment, particularly sexual harassment. Businesses will need to implement proactive measures, such as anti-harassment training and clear reporting channels​.

Pay transparency and equity

In a bid to address pay gaps, there will be additional requirements to publish pay details, including pay bands, with sanctions for companies who fail to comply. 

Increased parental rights

Maternity, paternity, and shared parental leave entitlements are expected to increase, along with greater flexibility for those parents returning to work.

Trade Union rights

Union rights are expected to be extended, making unionisation and collective bargaining easier, including unionisation of smaller businesses and organisations. 

Strengthened Worker Consultation Requirements

Legislation is expected that will increase employers’ obligations to consult with workers on issues including redundancies, mergers, or other major changes to the business.

The impact

The proposed changes have already led to growing uncertainty among employers, particularly smaller companies. According to recent research, many businesses have slowed down recruitment due to concerns over the costs and operational disruptions that these reforms may bring​.

Increased administrative burden

Employers will face a significant administrative load as they adapt to these new laws. For example, businesses must overhaul existing policies to comply with the new anti-harassment measures, tip distribution rules, flexible working rights, and consultation rights. Smaller companies, which often lack dedicated HR departments, may struggle with the increased paperwork and monitoring requirements.

Costs associated with sick pay and parental leave

The reforms will expand statutory sick pay from day one and increase parental leave entitlements, creating additional financial pressure on businesses. This could be particularly burdensome for SMEs, which may not have the financial flexibility to absorb the extra costs​.

Hiring concerns and employment uncertainty

The introduction of day-one unfair dismissal rights has raised concerns for businesses, especially smaller ones, which are leading to many being more cautious about hiring new staff. Neil Carberry, CEO of the Recruitment & Employment Confederation (REC), highlighted that confidence in the job market is currently too low for employers to “push the button” on new hires​. 

Many employers are making the decision not to hire, even not to go after opportunities, due to the increased perceived risk.  

Longer term there are clear signs that this will lead to increased investment in automation to avoid these costs and burdens, resulting in efficiency gains at the cost of jobs. 

Sector-specific challenges

Industries heavily reliant on zero-hours contracts, such as retail, hospitality, and care sectors, will need to rethink their workforce management. Offering guaranteed hours could increase labour costs, reduce flexibility, and impact profitability, particularly for SMEs.​

Recommendations

Don’t panic! Employers may be looking at these changes and seeing them as hugely costly and disruptive, and there are certainly going to be administrative and financial impacts, however, it won’t be as bad as many make out. 

Professor Steve Machin of the London School of Economics has pointed out that over the past fifty years, “in most aspects of the working relationship, power has tilted away from workers and in favour of employers… The shift has gone too far and has been bad for the economy and those working in it.”

The changes being introduced are not novel, in most cases they are bringing the UK more into alignment with other developed nations.

Key demographic and economic indicators show that there are still about 1.5 million too few potential staff for the roles in the UK, whilst the UK economy is growing faster than expected and by most metrics is outperforming the majority of its key competitors. The media is doing an outstanding job of talking down the UK and the opportunity the next few years represents, but if one ignores the hyperbole and looks at the data there is a lot to be positive about. 

Therefore, out key recommendation is not to panic, calmly look at the real impact on your business, the opportunities you are seeing and take these simple steps to minimise any negative impact:

Review employment contracts

Review all employment contracts, especially those using zero-hours arrangements. Ensuring that contracts reflect actual working hours and comply with the upcoming legislation will be essential for avoiding legal disputes and maintaining employee trust​. Consider alternatives to zero-hour contracts, or use of contractors. Look at your current working practices for managing shift changes and short notice, which may become harder, or impossible, to implement. 

Update policies and procedures

To comply with the new legal requirements businesses must audit and update all their HR policies and introduce regular training for all employees. This includes implementing a robust reporting system, including for absence, vacations, sick days, bereavement leave, tips, salaries, pay decisions, etc, and ensure that managers understand their obligations under the new laws.

Prepare for increased flexible working requests

Businesses should assess how flexible working arrangements can be integrated into their operations without compromising productivity. This might involve restructuring roles or adopting new technologies to enable remote work where possible. SMEs, in particular, need to create clear guidelines for managing flexible working requests to ensure fairness and transparency​.

Monitor financial implications

Employers should conduct a thorough audit of their financial position to understand how expanded sick pay, parental leave, and changes to zero-hours contracts will affect their bottom line. Contingency plans, such as adjusting budgets or reallocating resources, may be necessary to absorb these costs without impacting overall business operations​.

Enhance union relations

With Labour’s focus on empowering trade unions, businesses with unionised labour should engage proactively with unions to manage collective bargaining processes smoothly. Those without would do well to familiarise themselves with the potential for workers, even in smaller SMEs, to join unions. Building a constructive relationship with union representatives can help employers navigate potential conflicts and maintain a stable workforce​.

Act now and stay informed

Employers must not wait and hope for the best. These changes are coming and will have an impact, but it can be managed. Furthermore, further developments in employment law are highly likely. Engaging with HR consultants and, where necessary, legal advisors, especially where an employer does not have a substantial HR department, will be critical to navigating the changes and remaining updated on ongoing developments which could otherwise leave companies with significant legal liabilities​.

Crib sheet – what you need to do:

Review:

• All employment contracts and HR policies
• Your staff, know who you have and how they are employed
• Your HR procedures 
• Your use of zero-hours and temporary contractors
• Whether all employment records are up to date
• The impact of new procedures on upcoming plans, especially any restructuring
• The financial impact of the changes 
• Probation periods to potentially reduce the impact of immediate employment rights 
• Review trade union relations and the impact of unions entering your workforce

Develop:

• Updated contracts and HR policies
• A plan to mitigate the financial impact
• Excellent communication on changes with your workforce
• Strengthened HR procedures, especially disciplinary, capability and redundancy
• Reporting structures on wider characteristics 
• Policies and procedures for pay equality
• Plans for paternity leave being a day one right
• Plans for parents returning from maternity leave to receive additional support
• Separate reporting of bereavement leave
• Plans for communicating with and managing union relations
• Partnerships to assist you to implement the changes and to keep up to date on changes to HR law and practice

Train:

• HR and Management on changes and their new responsibilities
• Train Management, including the executive team, on management practice, effective communication and staff rights

But, most of all… don’t panic!

At Quarsh, we know how crucial it is to stay ahead in the evolving UK job market. Whether you’re aiming to attract top talent, adapt to technological advancements, or navigate workforce challenges, we’re ready to support you. If you’d like to discuss how these developments may impact your business please complete our contact form below or email us directly at hello@quarsh.com