Labour promised a comprehensive agenda of employment reform going into the July 2024 election in its plan to “Make Work Pay”. Following the October 2024 Budget and Employment Rights Bill publication, we now have a clearer understanding of what this will mean for businesses and how their agenda will be taken forward.
In this article, we aim to summarise those changes and for the Employment Rights Bill, in particular, outlining Labour’s direction of travel ahead of those changes coming into effect in 2026.
Budget for employers
The reforms emerging from the budget will make it more expensive for any minimum wage employers due to the increases across the board which will apply from the 1st April 2025:
The National Living Wage for 21+ year olds will increase from £11.44 to £12.21 per hour, a 6.7% increase
The national Minimum Wage for 18-20 year olds will increase from £8.60 to £10 per hour, a 16% increase
16-17 year olds and the apprentice rate will increase from £6.40 to £7.55, a 18% increase
There are also significant changes to Employers National Insurance Contributions (NIC):
The rate of employers’ NICs will increase from 13.8% to 15%
The threshold where employers pay employers’ NICs on each employee’s salary will reduce from £9,100 to £5,000 a year.
In a bid to help smaller businesses the government has:
Increased the Employers Employment Allowance from £5,000 to £10,500.
Removed the £100,000 eligibility threshold and expanded it to all eligible employers with NICs bills from 6th April 2025.
Offered a 40% relief on business rates (capped at £25,000) for employers in the retail, hospitality and leisure sectors
These changes will make it more expensive for most employers and it is therefore likely businesses will have to consider cutting recruitment budgets, reducing spend on bonuses and benefits and considering redundancies to counter these rising costs.
Employment Rights Bill
Originally it was feared that many of the proposed changes would be pushed through to apply early in 2025, it is now clear that the changes will be legislated from 2026 and a number following further consultation.
That said, the changes proposed will be substantial and work will be required through 2025 to fully understand the impact and prepare for them.
The key changes are highlighted below:
Day 1 right to unfair dismissal and potential ‘statutory’ probation period
Arguably the most far-reaching reform is the abolition of the two-year qualifying period for unfair dismissal. This essentially gives workers' rights and protections from day one of employment. The government will consult on a statutory nine-month probation period which will go some way to mitigate the concern of recruiting ‘poor hires’. Understanding how this potential ‘statutory’ period will work and ensuring effective inductions and reviews throughout this period will be hugely important to prevent costly recruitment mistakes.
Additional support for Flexible Working
Building on previous legislation, the Employers Rights Bill strengthens the employees right to flexible working by placing the onus on employers to only refuse a flexible working request if it “reasonable” to do so. Employers will also have to state the legal grounds relied upon in refusing the request.
Paternity and bereavement leave
Paternity leave will become a day 1 right, bringing it in line with maternity leave. A further review of paternity leave will be conducted and follow in due course.
Though details are as yet unclear, Bereavement leave will be extended to encompass more than the death of a child. Employers will be required to establish a bereavement leave policy and apply those benefits to all employees.
Sick leave
The current waiting days will be removed and Statutory Sick Pay (SSP) will be payable from the first day of illness and not the fourth day, providing more protection for employees. The qualification criteria for employees earning below the Lower Earnings Limit (LEL), currently £123 per week, is also set to be removed so all employees, regardless of how much they earn, will be entitled to claim some SSP.
Zero Hours contracts
After 12 weeks of employment workers on zero hour or low hour contracts will have the right to request a guaranteed hours contract based on the average number of hours they have worked in that 12 week period. Workers can remain on a zero hours contract if they prefer to. This reform is intended to protect workers by removing the “one sided flexibility” of the “exploitative” zero hour contract.
Fire & Rehire
Employees will only be able to legally fire and rehire employees who fail to agree to changes in their contracts when they can demonstrate it would prevent the business going into bankruptcy.
Preventing Sexual Harassment
Building on The Workers Protection Act 2023, the new bill will increase responsibility on employers to take “all reasonable steps” to prevent sexual harassment of employees including protecting them from third parties.
Equality Reporting for Larger Employers
Firms with over 250 employees and those in the public sector will be required to write and publish an equality action plan to demonstrate their commitment to gender equality.
Trade Unions
Pending consultation, legislation brought in under the Conservative government in 2016 defining minimum service levels and a minimum turnout requirement for legal strike action will be repealed. In addition, the Government intends to strengthen the legislation underpinning union access, recognition and rights.
Hummingbird HR Services will continue to monitor the changes as they progress through the consultation and legislative process. If you would like to discuss or for further details, please contact Annette@hbhrs.co.uk or call on 07748 713936.
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