Government Announces Key Amendments to Employment Rights Bill
The Government has unveiled significant amendments to its flagship Employment Rights Bill following extensive consultations with businesses across the UK. These pivotal updates, led by Deputy Prime Minister Angela Rayner and Business Secretary Jonathan Reynolds, include an expansion of the ban on zero-hour contracts to agency workers and enhancements to statutory sick pay.
In outlining the latest changes, Rayner emphasized, “For too long, millions of workers have been forced to endure insecure, low-paid, and irregular work while our economy has suffered from low growth and productivity. We are turning the tide – with the most substantial upgrade to workers’ rights in a generation, enhancing living standards and contributing to the growth reforms our economy desperately needs.”
Nonetheless, while many labor unions have welcomed these reforms, businesses have expressed concerns about the potential impact of these sweeping changes. According to an impact assessment conducted by the Department for Business and Trade (DBT), the proposed measures are anticipated to cost the estimated 5.6 million businesses in the UK billions. The Government estimates that the upper limit of these costs could reach approximately £4.5 billion, which accounts for about 0.5 percent of the UK’s £1.3 trillion annual wage bill. On average, this translates to around £3,000 per company in the UK.
Here are some key ways that workers could benefit and businesses could be impacted by the reforms:
Changes to Statutory Sick Pay
Benefit to Workers:
- The Employment Rights Bill introduces measures that allow workers to claim sick pay from their first day of absence, eliminating the previous £123 weekly minimum earning threshold.
- The Department for Work and Pensions (DWP) has confirmed that the statutory sick pay rate will be set at the lower of either £118.75 or 80 percent of the employee’s wages. These changes will be integrated into the legislation when it is presented in the Commons in the coming weeks.
- For instance, a part-time worker earning £12.21 per hour for 10 hours a week would typically earn £122.10 weekly and would not qualify for sick pay under current regulations. However, under the new reforms, they would receive £97.68 weekly from their employer during their illness.
- Additionally, the removal of the three-day waiting period for sick pay claims means that a full-time employee earning £488.40 weekly, who is off sick for two weeks, will receive £237.50 instead of £166.25, marking an increase of £71.25.
Impact on Businesses:
- According to an impact assessment published by the DWP prior to the consultation on sick pay, these changes could result in an annual cost of approximately £1 billion for businesses. This averages out to about £38 per worker, reflecting an increase of £15 compared to existing regulations.
- The DWP also suggested that businesses might incur indirect costs due to a decrease in output from more employees, estimated to total £36 million across the UK. However, the assessment acknowledged that allowing employees to take sick leave earlier could facilitate quicker recoveries, potentially enhancing overall business productivity.
- Moreover, the assessment noted that benefits that are challenging to quantify, such as lower disease transmission, healthier employees, and reduced staff turnover, could also arise.
Right to Flexible Working
Benefit to Workers:
- Currently, employees have the right to request flexible working arrangements, yet employers can deny these requests for various reasons, including excessive costs or staffing challenges. The new legislation introduces an obligation for employers to justify any rejections of flexible working requests.
- It also establishes provisions for flexible working claims to be referenced in employment tribunals, further empowering employees.
Impact on Businesses:
- The Government anticipates that businesses will incur costs of approximately £7.8 million to adapt their systems to comply with the new guidelines, along with additional administrative costs of around £600,000 annually.
- Nevertheless, the official impact assessment indicates that the overall outcomes are likely to be beneficial, as employers are not required to disclose the specific costs of facilitating flexible working. This means that smaller businesses may justifiably reject requests that would impose excessive financial burdens.
- The Department for Business and Trade (DBT) claims that improved productivity and employee satisfaction are potential advantages of allowing a more flexible workforce.
Banning Zero-Hour Contracts
Benefit to Workers:
- The Government is eliminating zero-hour contracts to enhance job security and financial stability for workers, including agency workers. Employees who previously faced unpredictable hours will be granted contracts that reflect their regular work patterns, typically based on the average hours worked over a 12-week period.
- This change is particularly advantageous for low-paid workers in sectors like retail, hospitality, and social care, where zero-hour contracts have been prevalent.
- Additionally, employers who alter or cancel a worker’s shift on short notice will be obligated to compensate them for the original scheduled shift.
Impact on Businesses:
- The DBT estimated last year that implementing the ban on zero-hour contracts could incur costs of around £160 million, with a potential loss of workforce flexibility that could amount to “hundreds of millions of pounds.”
- The initial financial burden on all businesses is projected to be approximately £100 million, as employers will need to draft new contracts and establish new working patterns.
- Further costs will be incurred as the new system is applied to future hires. Overall, businesses may find themselves £2.3 million worse off annually due to increased administrative expenses associated with this change.
- As for compensation for canceled shifts, official assessments estimate this could cost businesses about £320 million per year, primarily due to challenges in workforce planning in various sectors.
- The Recruitment and Employment Confederation (REC) has cautioned that these changes should not compromise the flexibility that zero-hour contracts provide to certain workers.
Day One Protection from Unfair Dismissal
Benefit to Workers:
- The amendments will extend protections against unfair dismissal to employees from their very first day of work, thereby enhancing job security and diminishing the risk of arbitrary terminations.
- Workers will no longer need to complete a two-year tenure to gain these protections, allowing them to challenge dismissals they perceive as unfair. This change is particularly beneficial for vulnerable workers who may otherwise hesitate to assert their rights.
Impact on Businesses:
- The primary concern for businesses arising from this change is the potential increase in employment tribunal claims following dismissals. Although there will be safeguards for employers dismissing employees during their probation period, the new regulations will facilitate claims of unfair dismissal across the board.
- The official DBT impact assessment published last year indicated that UK businesses could incur up to £43.2 million annually in legal expenses and employee turnover costs over the next decade.
- This change could be particularly burdensome for small businesses, which may find it more challenging to absorb additional costs and could suffer more from unproductive employee-job mismatches.
Day One Right to Parental Leave
Benefit to Workers:
- The Government is abolishing the 26-week waiting period for parental and paternity leave, helping 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 service may also experience increased wages if this policy results in greater labor mobility by removing barriers to changing jobs.
Additional Support for Bereavement Leave
The Government is also expanding bereavement leave to encompass more family members and provide enhanced emotional and financial support for those facing loss, ensuring they do not have to choose between work obligations and grieving their loved ones. Ministers have confirmed that mothers and their partners will be entitled to two weeks of bereavement leave in the event of a pregnancy loss before 24 weeks of gestation, potentially benefiting around 250,000 expectant mothers in the UK who experience a miscarriage each year.
Impact on Businesses:
- According to DBT estimates, eliminating the waiting period for parental leave will result in additional costs of approximately £24.7 million annually for businesses.
- Small and medium-sized enterprises (SMEs) will likely be disproportionately affected, bearing about 35 percent of these costs despite employing roughly 29 percent of the workforce.
- The financial implications of introducing bereavement leave will vary depending on whether it covers only immediate family or extends to include relatives such as grandparents, with potential costs estimated between £21 million and £64.2 million annually.
