Anticipated modifications in Labour's employment legislation and their potential impact on small enterprises.
The UK's Labour government is planning to beef up workers' rights, according to ministers. Detailed proposals on how to "make work pay" are expected to be published by Labour in October.
The proposed changes, outlined in the Employment Rights Bill (ERB) 2025, aim to strengthen workers' rights in key areas such as unfair dismissal, zero-hours contracts, statutory sick pay (SSP), redundancy, and TUPE regulations.
Key Proposed Changes
Unfair Dismissal
Initially, proposals included day-one protection against unfair dismissal, meaning employees could claim unfair dismissal from the first day of employment. However, an amendment in the House of Lords proposed retaining a qualifying period but reducing it from 2 years to 6 months. Discussions are ongoing with no final decision; a simplified dismissal process would apply during the first 9 months if the amendment passes.
Zero-hours Contracts
The government seeks to end exploitative zero-hours contracts by introducing guaranteed minimum hours for workers whose average hours exceed their contracted hours, even without the worker requesting it. Employers must also provide reasonable notice of shift changes and compensation for cancelled shifts. Lords amendments may restrict the guaranteed hours uplift only to cases where employees actually request this, reducing the administrative burden on employers.
Statutory Sick Pay (SSP)
SSP will be payable from the first day of illness instead of the fourth day. The lower earnings limit for eligibility to SSP will be removed, extending SSP coverage to lower-earning workers. These changes are expected to come into effect in April 2026.
Redundancy
The maximum protective award for collective redundancy consultation failures will double from 90 days’ pay to 180 days’ pay. Further consultations on collective redundancy rules, including this increase, are planned for late 2025 to early 2026.
TUPE Regulations (Transfer of Undertakings)
The Bill introduces automatic unfair dismissal protection if an employee is dismissed with the intent to replace them with someone who is not an employee of the same employer (e.g., outsourcing). This aims to prevent unfair dismissals linked to outsourcing or changes in service providers.
Impact on Small Businesses
The proposed reforms, while promoting fairness and security for workers, also impose new compliance and financial challenges on small businesses. Key areas of concern include zero-hours contracts, sick pay, dismissal thresholds, and redundancy costs. The government plans staggered consultations and clear guidance to help businesses adjust.
Some provisions, such as unfair dismissal and zero-hours reforms, are under active consultation during 2025. SSP changes and increased redundancy awards are expected in April 2026. Other reforms like enhanced pregnant workers’ rights, trade union measures, and bereavement leave will be phased through late 2025 into 2027.
Labour's efforts to keep employers, including small businesses, onside in recent weeks suggest ministers are at least prepared to listen to concerns about the reforms. Deputy Prime Minister Angela Rayner and Business Secretary Jonathan Reynolds have met with small business groups to discuss potential changes to the law.
Small businesses are advised to review their current practices in light of the upcoming reforms to identify potential conflicts. Subscribers can stay ahead of the curve by reading the magazine, an exclusive early access to news, opinion, and analysis from a team of financial experts, available through a subscription to the website's magazine.
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