​Employment Reforms Raise Concerns in Business Sector Amid Major Worker Rights Overhaul

In a significant move aimed at transforming the UK’s labour market, the government has introduced the Employment Rights Bill, touted as the most sweeping overhaul of employment law in a generation. The bill, revealed just 100 days after the new administration took office, promises to boost workers’ rights, eliminate exploitative employment practices, and improve job security for millions. However, while the government emphasises the potential benefits for both workers and businesses, many within the business community are expressing grave concerns about the speed and scope of these changes.

© UK Parliament / Maria Unger, CC BY 3.0, via Wikimedia Commons

With 28 individual reforms included in the bill, such as ending zero-hours contracts, introducing day-one rights for dismissal protections, and making flexible working the default, business leaders warn that these measures could create additional burdens, particularly for smaller firms. Though the government insists that the reforms will increase productivity and pay, many in the business sector question whether these ambitious goals can be achieved without unintended consequences.

Key Reforms at a Glance:

Day-One Protections: Workers will be protected from unfair dismissal from the first day of employment, removing the current two-year qualifying period.

Zero-Hours Contracts: Exploitative zero-hours contracts will be ended. Workers who have consistent hours will be entitled to a guaranteed hours contract, while those who prefer zero-hours contracts can remain on them.

Flexible Working: Flexible working will become the default option unless employers can prove that it is unreasonable.

Parental Leave: Workers will gain day-one rights to parental leave, providing immediate protections for new parents.

Paternity Leave: Day-one rights for paternity leave will be introduced, ensuring fathers and partners are supported from the beginning of their employment.

Bereavement Leave: Employees will have a right to bereavement leave from their first day on the job.

Statutory Sick Pay: The lower earnings limit for statutory sick pay will be removed, ensuring all workers qualify. The waiting period for sick pay to kick in will also be scrapped, allowing workers to access it from day one.

Probation Period: A statutory nine-month probation period will be introduced, allowing businesses to assess new hires’ suitability while providing employees with immediate rights.

Gender Pay Gap Action Plans: Large employers will be required to create action plans to address gender pay gaps and take steps to support employees going through menopause.

Pregnancy and Maternity Protections: Protections against dismissal will be strengthened for pregnant women and new mothers, extending to six months after they return to work.

Fair Work Agency: A new agency will be established to enforce workers’ rights, such as holiday pay, and provide guidance to employers on compliance.

Fire and Rehire Practices: Loopholes that allow unfair “fire and rehire” tactics will be closed, offering greater protection to workers from exploitative practices.

Right to Switch Off (Future Consultation): Workers may gain the right to disconnect from work outside of working hours, except in exceptional circumstances, following further consultations.

Expansion of Equality Bill: Large employers may be required to report ethnicity and disability pay gaps in an expansion of the Equality (Race and Disparity) Bill, subject to future consultations.

Review of Parental and Carers Leave: The government will review parental and carers leave systems to ensure they meet the needs of both employers and employees.

Single Worker Status (Future Consultation): A move towards simplifying employment law by creating a single status for workers, transitioning to a simpler two-part framework for employment status, subject to consultations.

Business Concerns: A “Rushed” Job?

While the government promotes these changes as essential to boosting economic growth and addressing long-standing inequalities in the workplace, several business leaders have voiced concerns over the practicality and timing of the reforms. Critics argue that the rapid introduction of the bill and the sheer number of reforms could overwhelm businesses, particularly small and medium-sized enterprises (SMEs).

Tina McKenzie, Chair of Policy and Advocacy for the Federation of Small Businesses, voiced a stark warning: “This legislation is a rushed job; clumsy, chaotic, and poorly planned. Dropping 28 new measures onto small business employers all at once leaves them scrambling to make sense of it all. Beyond warm words, it lacks any real pro-growth element. It will increase economic inactivity, seriously jeopardising the government’s own 80% employment target.”

Though well-intentioned, the concern is that these reforms could place undue pressure on businesses already navigating economic challenges, including inflation and labour shortages. For many SMEs, adapting to these changes could require costly operational adjustments, including reworking contracts, reviewing flexible working arrangements, and navigating the complexities of statutory probation periods.

Impacts on Flexibility and Costs

Introducing flexible working as the default is one area where businesses, particularly in sectors like hospitality and retail, have expressed apprehension. While flexible working is seen as a positive development for many employees, Kate Nicholls, CEO of UKHospitality, noted that its application must be carefully considered for industries where on-demand staffing is essential: “Flexibility is crucial for hospitality, which provides countless roles for working parents, students, carers, and many more. We look forward to continuing our engagement and consultation with the government on its plans, which are not without cost, to get the details right for all parties.”

Larger businesses may also face challenges in implementing the new reforms. Helen Dickinson OBE, CEO of the British Retail Consortium, representing the country’s largest private sector employer, stated that while responsible retailers already provide many of these protections, “Introducing these standards for everyone means good employers should be competing on a level playing field. We look forward to engaging the government on the details, including seasonal hiring and using probation periods.”

These concerns reflect a broader sentiment across the business community: while the reforms aim to raise employment standards, there is a risk that they could lead to increased costs, complexity, and reduced flexibility, particularly for industries reliant on seasonal or casual workforces.

The Burden of Compliance

Another key worry for businesses is the potential for increased regulatory burdens and compliance costs. The bill will require large employers to create action plans addressing gender pay gaps and supporting employees through menopause. At the same time, a new Fair Work Agency will be established to enforce rights such as holiday pay and statutory sick pay.

Peter Cheese, Chief Executive of the Chartered Institute of Personnel and Development (CIPD), acknowledged the significant changes ahead: “The changes being made represent the greatest shift in employment legislation in decades, and there is clear recognition that much detail still to be worked through. This will take time.”

Introducing a new agency to enforce compliance has also raised business concerns about the potential for increased oversight and penalties. While the government aims to support employers in complying with the law, some in the business community fear that the reforms could lead to a more complex regulatory environment, particularly for those without the resources to navigate these new requirements.

Long-Term Competitiveness and Recruitment Concerns

Beyond immediate compliance, many businesses question how these reforms will affect their long-term competitiveness in domestic and global markets. The introduction of statutory sick pay from day one, flexible working as a default, and greater protections for workers could improve job satisfaction and retention, but some fear that increased costs may deter investment and innovation.

Chris O’Shea, CEO of Centrica, highlighted the benefits of supportive workplace policies, noting that Centrica has seen cost savings from improved retention through initiatives like flexible working and carers’ policies. However, he emphasised the importance of getting the details right: “It’s the right thing to do, and it makes business sense. But it requires careful planning to avoid unintended consequences.”

At the same time, recruitment experts are considering how the reforms will impact businesses’ ability to attract talent. Some worry that stringent protections and new regulatory burdens could make the UK less attractive for global talent and may slow recruitment processes. Neil Carberry, CEO of the Recruitment and Employment Confederation, noted that while the reforms offer opportunities for better job security, businesses must balance these with the need to remain agile and competitive in a rapidly changing labour market.

These concerns highlight the broader challenge of ensuring that the reforms lead to the desired pay, productivity, and economic growth improvements without stifling business innovation or increasing regulatory red tape.

Looking Ahead: A Long Road to Implementation

Despite the concerns, the government insists that the bill will ultimately benefit businesses by creating a more engaged and secure workforce, leading to higher productivity and lower turnover. Business Secretary Jonathan Reynolds emphasised the importance of finding the right balance: “Our plan will give the world of work a much-needed upgrade, boosting pay and productivity. The best employers know that employees are more productive when they are happy at work. That is why it’s vital to give employers the flexibility they need to grow whilst ending unscrupulous and unfair practices.”

However, the road to full implementation of the reforms may be extended. The government has acknowledged that some measures, such as the right to “switch off” and mandatory reporting of pay gaps, could take years to fully effect. Negotiations with business groups and unions will also play a key role in shaping the final details of the legislation, meaning that many businesses may not feel the impact of these reforms for some time.

Paul Nowak, General Secretary of the TUC, recognised the challenge: “While there is still detail to be worked through, this bill signals a seismic shift away from the Tories’ low-pay, low-rights, low-productivity economy.”

For businesses, particularly those in industries reliant on flexibility and casual employment, the Employment Rights Bill represents both an opportunity to modernise and a potential minefield of new regulations. As the government continues to refine the details, many business leaders will be watching closely to see how these changes unfold and whether they deliver the promised balance between worker rights and business viability.