The Employment Rights Bill, which is the first step in the Government’s plan to ‘make work pay’, and was introduced to Parliament in October 2024, could result in substantial compliance costs – totalling around £5 billion.
Of the provisions made by the Bill, the most significant include a ban on many zero-hour contracts, the extension of day one employment rights, encompassing protection from unfair dismissal and parental leave, and enhancements to Statutory Sick Pay (SSP).
For employers, this will represent a notable shift in current practices and sectors such as hospitality, care and retail, which heavily rely upon the use of zero-hour contracts to manage fluctuating demand, are likely to be disproportionately affected.
Changes to Statutory Sick Pay (SSP)
The Bill proposes changes to be made to SSP, which will allow it to be paid from the first day of absence due to sickness; this is instead of day four, as it currently stands.
Additionally, the minimum earnings threshold which determines eligibility for SSP will be removed. Instead, SSP will be paid out at the lower of the current flat rate, or a given percentage of a worker’s weekly earnings, enabling a further 1.3 million low-paid workers to access SSP.
Worth noting is that the Government are still figuring out exactly how SSP will be proportioned for low-paid workers, and this issue is likely to be covered as part of consultations in 2025.
Breaking down the costs
Businesses are going to face increased compliance costs as a result of the changes brought about by the Employment Rights Bill, and in many cases cash reserves could be severely impacted.
Associated costs may include:
- Training on new legislation
- Administration
- Loss of flexibility afforded by zero-hour contracts
- The costs associated with leave, such as temporary recruitment
It is estimated that enhanced sick pay alone could cost employers around £400 million per year, while workforce planning could represent a cost of around £200 million.
Timetable for changes
With the legislation yet to receive Royal Assent, the Government expect to begin consulting on many of the proposals in 2025, with reforms likely to take effect in 2026. We anticipate that further detail relating to the policies mentioned above will be published in due course.
Staying ahead of the curve
Despite the fact that 2026 might seem some way off, it does no harm to stay ahead of the curve and to consider how you might tackle these new challenges.
To offset the potential expenses, you might want to think about the following:
- Efficiencies – New processes, while potentially costly, also present an opportunity to make operational efficiencies and to reduce the overall time and financial outlay associated with employment administration.
- Delaying investment – Many costs associated with compliance will taper off over time, so it may be that by deferring certain investment plans you can better maintain a healthy cash flow.
- A head start – Getting a head start in respect of some of the likely changes, for example by reviewing and planning your staffing, can help you to minimise costs.
It is also worth bearing in mind that from April 2026, payrolling of benefits becomes mandatory for employers, which will add to the complexity of payroll for many currently relying on P11D forms.
By beginning to build a picture of how you will accommodate the upcoming changes, you will not only be in a position to afford your employees’ some certainty, but also to ensure your business remains flexible as the legislative landscape evolves.
For advice on managing challenges associated with proposals outlined in the Employment Rights Bill, please contact our team today.
