On 10 October, the government unveiled its long-anticipated Employment Rights Bill, a comprehensive package of reforms designed to strengthen worker protections, boost pay and improve productivity across the UK. The bill is undeniably ambitious, introducing 28 individual reforms that could have far-reaching consequences for business owners—particularly small businesses.
At the heart of the bill are changes to unfair dismissal protections, new day-one rights for employees, and stronger entitlements around paternity, parental and bereavement leave, and statutory sick pay. On paper, these changes are a step forward for worker rights and wellbeing, but what do they mean for small businesses? Let’s explore the potential impacts.
Administrative and Financial Burden
One of the most immediate concerns for small businesses is the administrative and financial pressure these reforms will bring.
The removal of the two-year qualifying period for unfair dismissal means that small business owners will need to take extra care with hiring decisions from day one. Add to this the new day-one rights for paternity and parental leave, as well as statutory sick pay, and it’s easy to see how small businesses—often operating with lean teams and tight margins—could face challenges.
Small businesses will undoubtedly not have the HR departments or resources that larger companies do to manage the complexities of these new rights. The cost of hiring additional HR expertise or legal advice to ensure compliance with the new laws, could add strain to already overstretched budgets.
Flexible Working as a Default
The bill also mandates that flexible working becomes the default from day one unless an employer can demonstrate that it is unreasonable. While flexible working can boost employee satisfaction and retention, it may pose significant challenges for smaller businesses that rely on employees being physically present or on fixed schedules.
Sectors like retail, hospitality, and healthcare, which are heavily reliant on in-person staff, may find it difficult to accommodate widespread flexible working. In these cases, small business owners could be forced to justify rejecting flexible working requests, potentially increasing the risk of disputes or legal challenges.
Probationary Periods: A Double-Edged Sword
One aspect of the bill aimed at easing the pressure on businesses is the introduction of a statutory probation period, potentially set at a maximum of nine months. This is intended to give businesses more flexibility in managing new hires during the early stages of employment, allowing for easier dismissal if the role isn’t working out.
While this offers small businesses some protection, what the process will look like is currently unclear until the details are finalised, which could cause confusion and uncertainty between the old and new rules when it comes to hiring.
Impact on Hiring Practices
The combination of stronger worker protections and new probationary rules may make small businesses more cautious about hiring. Faced with increased financial risk, some may reduce headcounts or rely more heavily on part-time or casual workers. Alternatively, businesses may focus more on automating tasks, particularly in industries where labour costs are already a major concern.
Moreover, the introduction of guaranteed hours for workers on zero-hours or low-hours contracts could limit flexibility for small businesses. Previously, small business owners could offer variable hours based on demand, but these changes mean they may need to guarantee regular hours for workers who meet certain criteria. This shift might result in fewer opportunities for casual or temporary staff, as small business owners look to avoid being locked into long-term commitments.
Sector-Specific Challenges
Different sectors will experience the impact of these reforms in different ways. In sectors like construction, hospitality, and retail—industries that often rely on temporary or flexible workers—the move to guarantee hours and ban “fire and rehire” practices could significantly alter workforce dynamics and reduce the flexibility some businesses rely on during tough times or seasonal fluctuations in demand.
For businesses in sectors with low margins, the additional costs tied to statutory sick pay and other new entitlements could lead to cash flow issues, and already struggling businesses may find it difficult to absorb these extra costs.
Uncertainty Around Implementation
While the bill outlines a clear vision, there are still many details to be worked out, particularly around the proposed statutory probation period and the practicalities of enforcing the new flexible working standards. The government has signalled a period of consultation with small business owners and unions, meaning the final shape of these reforms may evolve over time.
However, this also leaves small businesses in a state of uncertainty. The bill’s changes aren’t expected to take effect for another 18 months, and even then, they could be altered. For small businesses that rely on forward planning, this lack of clarity complicates decisions around hiring, investment, and operational changes.
Limited Focus on Growth
Tina McKenzie, policy chair of the Federation of Small Businesses, has criticised the bill for lacking a clear focus on pro-growth measures. The reforms aim to improve conditions for workers, but there is concern that the increased costs and administrative burden will discourage hiring and investment, particularly among small business owners. McKenzie warns that these reforms could even reduce economic activity, jeopardising the government’s 80% employment target.
Conclusion: Navigating the Challenges
The Employment Rights Bill marks a significant shift in worker protections and entitlements, but for small businesses, these changes present a mixed bag of opportunities and challenges. While there are clear benefits to boosting worker security and making flexible working more accessible, the cost and complexity of implementing these reforms could be overwhelming for small business owners.
For small businesses to thrive under these new regulations, the government will need to offer clear guidance, financial support, and a streamlined approach to help them adapt. Otherwise, the risk is that many small businesses—particularly those in low-margin sectors—will struggle to keep up, potentially limiting job creation and growth in the long run. Let face it governments are not known for being able to do this so don’t hold your breath.
As these reforms move toward implementation, small business owners should closely monitor the evolving details and consider consulting with HR professionals or legal advisers to ensure compliance. A thoughtful, well-prepared approach will be essential in navigating the challenges and maximising the benefits of these wide-ranging changes.
