Last month, Labour’s ‘once-in-a-generation’ overhaul of workers’ rights finally became law, but in a significantly diluted format.
After a drawn-out game of parliamentary ping-pong, ministers made a series of concessions that have reduced the projected impact on workers, simultaneously lessening the cost for UK employers.
According to the government’s latest figures, the cost of the reforms for businesses has fallen from as much as £5bn to around £1bn. For small businesses already up against a relatively bleak financial outlook, the news may trigger a sigh of relief.
What’s changed in Labour’s Employment Rights Bill
On its way through Parliament, the landmark Employment Rights Bill has been subject to many key concessions.
Notably, ministers scrapped plans to introduce day-one rights to claim unfair dismissal, instead replacing them with a six-month qualifying period. This was in direct contrast with Labour’s election manifesto, causing backlash from several MPs, business groups, and trade unions.
Other changes include gradually phasing in reforms, rather than introducing them all at once.
Despite the revisions, the bill will still introduce major employment changes, including day-one rights to sick pay and paternity leave, which employers should be prepared for by April 2026.
How much will it really cost businesses?
The government’s revised impact assessment puts the cost of the reforms at around £1bn for businesses, a significant drop from previous estimates of £5bn.
However, business groups have challenged the government’s figure. The British Chambers of Commerce said the £1bn figure likely underestimates the true cost of the impact on businesses.
Policy director, Kate Shoesmith, commented: “The impact figure doesn’t adequately account for the harder to quantify costs. Those include staff time for understanding and implementing new processes or explaining these to colleagues.”
Furthermore, some business leaders and Conservative politicians are also unhappy with the bill, saying that even in its diluted form, it adds unnecessary pressure to businesses at a particularly economically difficult time.
What does it mean for small businesses, and what happens next?
Aside from the projected cost to employers, the government says that millions of workers will benefit from the improved employment rights, particularly women, young people, and lower-paid employees.
The reforms are intended to improve job quality and productivity, while creating fairer competition between businesses and bringing the UK in line with EU standards, which should have an overall positive impact on economic growth.
For small businesses, the focus should now be on adapting to the upcoming changes. While the phased rollout may slightly delay the immediate impact, employers will still need to review their HR processes while preparing for the new ways of working and potential cost increases along the way.
