Labour made a manifesto promise to introduce a new Employment Bill to Parliament within 100 days of forming the government (i.e. by 12 October 2024), based on the proposals set out in “Labour’s Plan to Make Work Pay”. It has described this as “the biggest upgrade of workers’ rights” in a generation.
The proposed Bill is likely to contain the policies that are the most straightforward to implement and require the least consultation; the more complex proposals, such as the removal of the intermediary “worker” status (see section 6, below), are likely to take years to implement. There will be a number of public consultations on the proposals before legislation is introduced to Parliament, and a bill must of course pass through a number of stages before it becomes law.
Here are the nine proposals that are likely to have the greatest impact on the majority of small business employers:
1. Unfair dismissal
The qualifying period for claiming unfair dismissal has changed over the years; the eligibility period is currently two years in Great Britain and one year in Northern Ireland. There is no qualifying period for employees to claim their dismissal is automatically unfair (for example, due to whistleblowing) or discriminatory.
Labour has proposed making the right to claim ordinary unfair dismissal a day-one right for employees. It is not yet clear whether this proposal would mean that employees could, for example, be dismissed following a lighter-touch procedure during their probationary period than the procedure used for those who have completed their probation. However, what is clear is that removing the qualifying period for claiming ordinary unfair dismissal (as well as increasing the window in which employees or ex-employees can bring claims) will almost certainly increase the number of grievances and claims against employers.
"Labour has proposed making the right to claim ordinary unfair dismissal a day-one right for employees"
What can employers do to mitigate the risk of claims from recent recruits?
Clearly, an employer will not want to follow a series of formal written warnings or a longer dismissal process in cases where it quickly becomes clear that they have made the wrong hire and an employee is not suitable for their role. A potential day-one right to claim unfair dismissal means employers will want to ensure that conversations with employees about performance or other concerns are documented, and that probationary periods are used and managed properly.
This is current best practice, particularly given the claims that dismissed employees can bring, such as discrimination, that do not require any minimum length of employment service. Having appropriate legal expenses insurance in place will give employers access to timely legal and claims advice, and cover in the event of a claim or potential claim.
2. Sick pay
In our experience, managing absences caused by sick leave and absorbing the costs of sick pay are a key concern for small business employers.
Currently, Statutory Sick Pay (SSP) is available to those who earn at least £123 per week, or £533 per month. SSP is paid to qualifying workers at a rate of £116.75 a week (at a pro-rated day rate), though it is generally not payable for the first three days of sickness absence. SSP cannot be reclaimed by employers.
Labour proposes abolishing the lower earnings limit so that SSP is universally available to all workers, regardless of their earnings, and would also remove the three-day waiting period. The removal of the earnings limit would affect businesses that employ very low-paid part-time earners, as well as introducing the need for employers to pay staff sick pay for one- or two-day absences.
3. Parental leave pay
Labour has said it will remove the current 26-week qualifying period for statutory parental leave pay, such as maternity pay, to make this a day-one right as well.
4. Zero-hour contracts
Labour has promised to legislate to ban “exploitative” zero-hour contracts (although it will no longer ban all zero-hour contracts, based on its latest proposals). This will affect businesses that rely on staff, such as ‘zero-hour’ workers, being entirely flexible as to the hours they work, and where the employer does not guarantee any minimum number of hours of work under the contract. Contracts will have to provide for several hours that are regularly worked, calculated over a 12-week reference period.
The ban would not prevent employers from continuing to use temporary (fixed-term) contracts of short duration, such as contracts for seasonal work. Consequently, where a business has work that fluctuates, this would instead mean either using temporary (fixed-term) contracts with guaranteed hours, or casual hours contracts where the worker is guaranteed a minimum number of hours.
"Labour has promised to legislate to ban “exploitative” zero-hour contracts"
Effectively, those minimum guaranteed hours would still need to be paid even if the work was not available, so the employer would effectively be paying a premium to retain that level of flexibility. Furthermore, employers would need to give reasonable notice when work or shifts are cancelled, and would be required to pay compensation for failure to give reasonable notice of cancelled work.
5. National Minimum Wage
Employers saw a fairly significant rise in National Minimum Wage rates in April 2024.
Labour is committed to removing the age bands that currently apply to the National Minimum Wage rates, and to introducing a “real living wage” by changing the Low Pay Commission’s remit to account for the cost of living, alongside median wages and economic conditions, when setting suggested rates, rather than focusing on inflation alone.
This would create the potential for higher increases in National Minimum Wage rates (although lower levels of inflation would mitigate this). Labour has also promised to introduce a single National Minimum Wage rate for all (non-apprentice) adult workers (aged 18 or over). Currently, the National Minimum Wage rate for 18- to 20-year-olds is set at the lower rate of £8.60 per hour, rather than £11.44 per hour. This change could apply from April 2025.
6. Employment status
UK employment law recognises three categories of workers:
- Employees with full employment rights
- Those with worker rights, such as the right to be paid at least the National Minimum Wage and the right to paid holiday and sick pay
- Those that are genuinely self-employed
In contrast, taxation legislation does not recognise the intermediary ‘worker’ status; individuals are either taxed under PAYE as an employee, or on a self-employed basis.
Labour is proposing to scrap the current ‘worker’ category and give workers full employment rights so that there is no longer a distinction between workers and employees for employment law purposes. This would give workers a right to parental leave pay (including maternity pay), as well as redundancy pay, the right to request flexible working and protection against unfair dismissal. They would also transfer their employment when a business or service provision changes hands under the TUPE Regulations.
"Labour is proposing to scrap the current ‘worker’ category and give workers full employment rights"
While Labour is silent on this, the proposed change to employment law would probably be harmonised with the taxation regime so that workers who are not already on the employer’s payroll would be taxed under the PAYE and employer/employee National Insurance regime. This would lead to greater costs for employers, as they would have to pay National Insurance Contributions.
However, this proposal would be subject to consultation and complex to implement, so would be a longer-term potential change. Since the 2017 Taylor review, previous governments have consulted on simplifying the test for worker status, but this has proved to be particularly complex and has probably been shelved for that reason.
7. Employment tribunal claims
Most tribunal claims must be brought within three months of the act complained of, or dismissal. Labour proposes extending the period of time within which claims must be brought to six months. This would probably increase the number of claims against employers (given the bigger window of opportunity for bringing a claim).
However, given the current employment tribunal backlog and shortage of judges, this may mean that claims would take longer to reach a hearing.
8. Flexible working
Employees already have the right to request flexible working, and employers can reject the request for one or more business reasons set out in the legislation. Labour plans to strengthen flexible working rights by giving employees the default right to flexible working unless the employer can show that this is not reasonably feasible.
9. A new right to disconnect outside normal working hours
In order to establish clearer boundaries between work life and non-working hours, Labour has promised to introduce a new right for employees to disconnect from work outside working hours and to not be contacted by their employer outside these hours.
However, it is not clear whether this would be an absolute prohibition on contact outside working hours other than in exceptional circumstances specified by legislation, or a lighter-touch regime. The latter appears more likely.
When can employers expect to see these changes?
We will need to await the detail of the policies following public consultation and once the Employment Bill is published; and the bones of the bill will need to be further fleshed out in regulations that will be implemented further down the line. This means that most of these changes will be implemented after October 2024, following a transition period.
Employers should also bear in mind the employment changes introduced by existing legislation earlier this year which has not yet been brought into effect. These include the stronger duty for employers to prevent sexual harassment in the workplace from October this year.
