What do the new workers’ rights proposals mean for your business?

The government proposed a raft of changes to workers' labour rights in October 2024, which could impact your business if you have employees. These changes include amendments to sick pay, zero-hours contracts, and hiring processes, and they could cost small businesses an estimated £5bn a year.

So what are the proposals? When will the changes take effect? And how will they impact your business? Let’s start with the basics.

What is draft legislation?

The proposed changes aren't final, as they are still in draft form. The Labour government has made it clear that it wants to consult with businesses across the country before moving forward. After that, the proposals go through a secondary legislation process where it faces further scrutiny from ministers.

So while the proposals set out the government’s thinking and direction of travel - things can change during the draft legislation phase.

What’s been announced?

Here’s a summary of the proposed changes to the Employment Rights Bill. 

Zero-hours contracts

Workers will have the right to a guaranteed-hours contract if they work regular hours over a period of time. However, if they prefer the flexibility of a zero-hours contract, they can keep it.

Two-year dismissal rights

Employees in their first two years of employment currently have less protection against dismissal. Labour intends to scrap the two-year qualifying period for more rights, a change ministers say will benefit around nine million workers.

A nine-month probation period

Originally, Labour planned to eliminate probationary periods altogether, but that approach seems to have changed. Instead, a nine-month probationary period could become the standard.

This also alters Labour’s initial plan to grant workers unfair dismissal rights from day one of employment. Under the new proposals, employers can dismiss employees during the nine-month probation. However, employers must give a warning before dismissing a worker, whereas under current rules, they can dismiss an employee without any warning during probation.

Paternity, parental and bereavement leave

A father or mother’s partner can access paternity leave from the first day of employment, instead of after 26 weeks. Both parents also become eligible for unpaid parental leave from day one, whereas the current law requires one year of employment.

Workers will also be eligible for unpaid bereavement leave from day one of employment. 

Fire-and-rehire loopholes

Amendments suggest the government will close any loopholes that allow employers to fire and rehire staff. In this practice, employers fire a staff member only to rehire them on less favourable terms.

Statutory sick pay (SSP)

Sick workers can receive SSP from the first day of illness, instead of day four as it is currently. The government will also remove the £123 per week minimum earnings threshold to qualify for SSP, although lower earners will receive a reduced amount.

Flexible working

We recently talked about changes to flexible working. Further proposals require businesses to consider any flexible working requests made by an employee from day one. Businesses must also approve the request, unless they can prove it’s unreasonable based on a list of eight reasons set out in the legislation.

How could the changes impact my business?

With a range of changes potentially coming into effect, there’s no denying the impact they could have on small businesses. Here are five ways the changes might affect your business and what you can do to reduce disruption.

1. Communicate with your employees

You can address many of the proposed changes through communication. If you employ staff on zero-hours contracts, ask them if they’re happy with that arrangement or if they want to switch to a guaranteed-hours contract. You may be able to move some staff to new contracts now.

2. Stay on top of the admin

Changes to flexible working and the requests you may see in response could create a lot of administrative work. Don’t ignore this, instead, stay on top of requests. This helps your employees feel valued and allows them to plan accordingly, especially if you have to deny the request. 

3. Work closely with your employees

A change to the two-year qualifying period for straightforward dismissals may cause problems if staff stop meeting expectations. It’s therefore important to work closely with new employees during the early months. A new standard nine-month probationary period gives you plenty of time to assess whether a new hire is a good fit. Clearly explain expectations to align both parties, and monitor progress through regular performance reviews.

4. Try to balance costs against cuts

Changes to SSP and the expansion of day-one rights for employees, including unpaid leave, all contribute to increased costs for businesses. Laying off employees or cutting back may seem like an obvious solution, but consider the bigger picture and explore other options first. You might want to:

• Foster an inclusive working environment to create a more happy, healthy and engaged workforce

• Look into government schemes and tax relief that you might not be taking advantage of

• Implement AI and automation for some of the more administrative and time-consuming tasks

• Re-evaluate your prices - you may need to increase some of them to cover new bills. Remember to communicate why you’re doing this to maintain trust with your customers

• Review your budget and see if there are non-essential expenses you can cut back on

5. Engage with the process 

The whole point of consultations is to give potentially affected parties a chance to voice their concerns. So if you have concerns, act now. Speak to organisations like the Federation of Small Businesses and engage with consultations that appear through government channels.

As part of the proposed changes, the government plans to introduce the Fair Work Agency. The agency can issue fines and even prosecute businesses that fail to comply with the reformed workers’ rights laws. Make sure you stay engaged and prepare accordingly. 

When could the changes take effect?

The proposed changes are unlikely to take effect until the autumn of 2026, so they aren't imminent. This gives businesses time to raise concerns with the government through consultations and allows the government to amend its proposals based on feedback from businesses.