Analysis | The Employment Rights Bill’s unintended consequences

Employment costs to rise

Our analysis finds almost eight out of ten employers believe measures in the ERB, including the introduction of a new statutory probation period, new rights for zero-hours workers and changes to Statutory Sick Pay (SSP), will have the effect of increasing workforce costs. The other measures analysed in the research included day one paternity and parental leave, changes to prevent the use of fire and rehire and new rights for workers to improve access to union recognition and representation.

Among organisations that say their employment costs will increase as a result of the ERB, four in ten expect to have to raise prices as a result and a quarter say they will cancel or scale down plans to invest in or expand their business. Almost a third of organisations who say their employment costs will rise, anticipate cutting headcount due to reduced hiring or redundancies. A further fifth say they will reduce overtime and/or bonuses and cut spending on staff training.

Challenge of adapting to so many new laws

As well as concerns over particular measures, organisations are facing the prospect of implementing so many new laws over a short period of time. Focus group discussions held by the CIPD’s public policy team with CIPD members suggest that if any of these new measures were introduced in isolation, there would be far less concern about their impact. It is the challenge of adapting to so many changes which adds to their collective burden and cost on business.

Impact of the budget

Employer concerns over the ERB need to be further considered in the context of the recent increases in employer National Insurance Contribution costs and the above inflation increase in the National Living Wage. For example, CIPD members were far more sanguine about the proposed changes to SSP in September 2024 than they were after the budget announcement of increases to employer NICs. Taken together, these changes present considerable headwinds to firms’ confidence, investment appetite and capacity. 

Increase in temporary and other forms of atypical employment

Analysis of our Labour Market Outlook data also indicates that some ERB measures will have other unforeseen, unintended consequences, restricting permanent employment opportunities for some workers.

Nearly a fifth of organisations that expect the ERB to increase employment costs say they are more likely to rely on temporary workers, while 10% report they will increase their use of other atypical workers and self-employed contractors. This potential shift to more temporary forms of employment is much higher in certain sectors. For example, a third of employers in the transport and storage sector say they expect to use more temporary workers, as do about a quarter of organisations in the arts, entertainment and recreation sector and also the public utility sector.

Fewer opportunities for workers needing more support

In addition, some employers anticipate recruiting fewer workers that may need more support, such as young workers, or those with health conditions. A fifth of employers report that the removal of the unfair dismissal qualifying period and the introduction of a new statutory probation period will mean they will be less likely to recruit from these groups.

Our conversations with members in focus groups suggest this is because of concerns that, as a result of the planned changes, it would be harder to dismiss new staff if they don’t perform as hoped. Consequently, employers will be more likely to err towards hiring candidates that have proven track records and present less perceived risk.

Further refinement on some measures still possible 

Looking ahead, few material changes are expected to the ERB as it passes through the House of Lords enroute to becoming law. But there is still scope for refining some key measures which will be subject to consultation and set out in secondary legislation.

This includes details of some of the most complex measures such as the new statutory probation period and a new ‘light touch’ process for dismissing new staff fairly, as well as the final design of new laws that will make it easier for unions to achieve statutory recognition and access workplaces. A lot of detail on the new rights for zero-hours workers is also still to be finalised.

It is crucial that the government is in genuine listening mode and is prepared to refine some of the proposed changes to regulation to ensure they are workable and don’t have needless unintended consequences for either employers or workers.

With the government intending to pass the bill before parliament’s summer recess at the end of July, the consultations on key details to be laid out in secondary legislation will likely need to take place in the second half of this year.

Clarity and support for employers key to successful implementation

Finally, the government should as a matter of urgency start setting out an implementation plan to help employers prepare for the introduction of new legislation.

While the government has committed to phasing in the new measures, understanding what that looks like will be vital. So far, the government has only confirmed that the new probation period won’t be implemented until October 2026, with civil servants implying most other measures won’t come in until some time in 2026.

However, it would be reasonable to expect most measures to follow ‘common commencement dates’, which see new government regulations implemented in either April or October each year. And, given the ERB’s current timetable and the government’s rhetoric to date, most employers would be very surprised to see any substantive measures implemented before 2026.

As well as clarity over when new laws are to come into force, there is also the need for the government to ensure employers are given the necessary advice and guidance. Acas will need more resources to strengthen its ability to provide advice and guidance to organisations, particularly to micro and small firms, which have far less understanding of their legal obligations and risks.

Changes to legislation in isolation won’t change employer and workplace practices for the better. Businesses need to be supported so they can be aware of and understand the implications of legislation and to ensure that their policies are updated, aligned and clearly communicated to the workforce. Crucially, for the ERB to achieve its aims, people managers must be supported in understanding their key role in managing people fairly and complying with the law.