On 10 October 2024, the UK government introduced to Parliament a new Employment Rights Bill (the Bill) following its commitment to publish this within 100 days of its election to office. The Bill introduces 28 proposed reforms to employment legislation in England, Scotland and Wales and is based on the government’s proposals set out in its Plan to Make Work Pay publication, which was published in May 2024. The government has hailed this as “the biggest upgrade of workers’ rights” in a generation. Indeed, the Bill is huge in scope (set out across 156 pages) and paves the way for stricter regulations on zero-hours contracts and day-one unfair dismissal rights for employees; with the removal of the qualifying period for unfair dismissal likely to have the biggest impact for small business employers.
The aim of this Bill is to provide greater legal protections for workers who currently have less job security and rights in terms of current legal protections. While creating a more secure and stable workforce is of course a positive aim, which could improve worker morale, employee retention and productivity in the long term, the reaction of UK small businesses to the Employment Rights Bill, has been mixed, with many expressing concerns about its potential impact.
Many are concerned that adapting to new employment regulations, especially the reforms related to day-one unfair dismissal rights, flexible working and zero-hours contracts, could be challenging without sufficient guidance or support. FSB has echoed these concerns on behalf of its members and is working hard to ensure that members’ voices are heard: FSB | Make Work Pay a “rushed job” which threatens employment and growth, say small firms.
Some of FSB’s concerns have been heard. For instance, the inclusion of an initial period of employment, where small businesses can have a probation period for new members of staff came about from FSB’s engagement with government. With the government due to launch consultation on many of these measures, FSB will continue to advocate for our members in the months ahead.
However, employers do not need to take any action now, nor do they need to change their recruitment processes as a result of the Bill.
The Bill has a lot of stages to go through before it becomes law, including various consultations in 2025 and beyond on the content. The most significant changes will not become effective before 2026.
Below is a summary of the most impactful proposals for small business employers:
Day-one unfair dismissal rights:
The Bill proposes granting protection against unfair dismissal from day one of employment, eliminating the current two-year qualifying period in Great Britain. However, there will be a new initial period of employment where a "lighter-touch" dismissal process for more recent recruits will apply. The Bill does not state the length of this period, as this will be set out in future regulations, although the government currently favours first nine months of employment. This initial period of employment where a “lighter-touch” dismissal process will apply, aims to balance worker protections from day one with flexibility for employers as to the dismissal process they are required to follow when dismissing poor performers early on. The government has stated that this change will not take effect before the autumn of 2026 at the earliest, following detailed consultation.
Statutory Sick Pay (SSP): SSP will be available to all workers, regardless of their earnings, by abolishing the lower earnings threshold. The current three-day waiting period for SSP will also be removed, meaning workers can claim sick pay from day one of absence. The government proposes introducing a lower rate of SSP for workers below the lower earnings threshold.
Zero-Hour Contracts: Workers on zero-hour or low-hour contracts will have the right to guaranteed hours based on their average hours worked, unless they choose to remain on a contract of this type. Employers must regularly offer guaranteed hours, and failure to do so could result in financial penalties. This change, which aims to reduce the current flexibility employers have in scheduling workers and increase security for workers on these types of contracts. The change is more likely to affect industries such as hospitality and retail that use contracts of this type due to fluctuating demand.
Flexible Working: Employers will still be able to reject flexible working requests based on the current statutory business reasons, but they must provide a reasonable explanation as to how the reason(s) applies for any rejection. This seeks to enhance transparency and accountability in the flexible working process by placing greater burden on employers to demonstrate why flexible working can’t be offered when requested.
Parental and Maternity Leave: The Bill extends protections against dismissal for pregnant employees, those on maternity leave, and parents returning to work, other than in circumstances to be set out in regulations. It also proposes to make paternity leave and unpaid parental leave day-one rights, eliminating the current qualifying periods.
Fire and Rehire: While small businesses less often rely on this process for forcing through changes to employment contracts than larger businesses, the Bill restricts the use of "fire and rehire" practices. Employers must demonstrate financial necessity to justify terminating contracts and re-engaging workers on the new desired terms. Dismissals made without evidence of serious financial difficulties will be treated as automatically unfair.
New Enforcement Body: The Bill proposes to establish the Fair Work Agency, consolidating the enforcement of minimum wage, sick pay, and other employment regulations.
Other Provisions: The Bill introduces other, less impactful provisions, including a day-one right to bereavement leave, and mandates that employers inform workers of their right to join a trade union. It also proposes a future consultation on banning unpaid internships. The government also proposes narrowing the gap to eventually create a single National Minimum Wage (NMW) rate for all adults aged 18+, removing the current lower NMW rate for 18- to 20-year-old workers. Workers aged 20 and 21 became entitled to the £11.44 current NMW rate for the first time under the previous government in April 2024.
Northern Ireland
In Northern Ireland, The Department for the Economy has completed their consultation seeking views on changes to a range of employment policy areas for a new Employment Rights Bill to apply in Northern Ireland. Most of the proposed legislation set out in the consultation mirrors recent legislation introduced in the last few years in England, Scotland and Wales but the Department is also seeking views on making changes to employment areas such as zero-hour working and the right to disconnect (which has already been introduced by the Irish government in the Republic of Ireland). There is no mention within the consultation of plans to introduce a two year back stop for unlawful deduction from wages claims and no suggestion at present of making unfair dismissal a day one right: The ‘Good Jobs’ Employment Rights Bill - Public Consultation (economy-ni.gov.uk). FSB Legal provides the same range of services to members in Northern Ireland as it does in England, Scotland and Wales.
FSB members can access a recording of FSB’s webinar on ‘Employment law changes: What you need to know and how FSB can help’ in the on-demand recordings section of FSB’s website. For a more in-depth summary of these proposals for members in England, Scotland and Wales see the Employment Rights Bill fact sheet on the FSB Legal and Business Hub. Once these changes take effect in the longer term, members will be able to access template documents and guidance on these changes on the FSB Legal and Business Hub.