ICAEW members have raised concerns about the impact of the Employment Rights Bill on employment costs, particularly on small and medium-sized businesses (SMEs), when businesses are already under pressure from rising costs and the increase in employers’ national insurance contributions (NIC).

Members say that, at a time when the government needs businesses to drive growth by taking risks, the Bill, along with these other pressures, will make businesses more risk averse. “We worry businesses will start playing it too safe, choosing a ‘safe pair of hands’ over bold, innovative talent that could drive real change,” said one member. “In the long run, that’s a loss for everyone.”

ICAEW produced a briefing that was sent to members in the House of Lords, as well as the Parliamentary Under Secretary of State for the Future Digital Economy and Online Safety Baroness Jones, and Opposition peers.

Amendments needed

ICAEW supports the government’s aim to boost productivity and recognises the potential benefits of stronger employment rights, but members believe the balance is off. It is not recommending that the government drops the Bill, rather that it is amended to avoid overburdening businesses.

“As most business leaders acknowledge, the best investment a business can make is in its people,” says Iain Wright, ICAEW’s Chief Policy and Communications Officer. “However, for this Bill to align smoothly with the government’s growth mission and to be embraced by businesses, amendments are needed.”

ICAEW collected views from 380 members on impacts to growth ahead of the Spring Statement in March. Of those that responded to the questions on the Bill, 73% of members expected it to increase employment costs for both new and existing employees, and 53% said it would likely reduce their plans to hire permanent staff. Just 3% believe that the Bill will encourage increased investment in staff training. Outsourcing may also increase because of the Bill, according to 40% of members surveyed.

This impact, members made clear, would not be as acute without the impacts of other recent changes. “Employment Rights Bill, National Living Wage and Employer NICs increase is a triple whammy [on businesses confidence],” said one member. “Like rushing down a hill towards a lake and pressing the accelerator.”

“With the minimum hourly wage now at £12.21, employees have to start at a minimum level of productivity to make employment viable; previously it had been possible to ‘take a chance’ on a new hire as they are onboarded, but that is no longer the case,” added another South West-based member.

Impact on talent

Businesses are particularly concerned about the Bill’s potential impact on recruitment. There is a fear among businesses that they could get stuck with bad hires, putting productivity and team morale at risk, explained a member. “Whether large or small, every business leader knows how crucial it is to get recruitment right, and they feel this Bill raises the risk of getting it wrong."

The Bill may unintentionally push businesses toward more internal promotions; this comes with some risk as it limits the talent pool from which they can draw – but external hiring may be perceived as the greater risk. Some members felt that the government needed to communicate clearly to businesses that the Bill would not result in them being stuck with underperforming employees. “Without that reassurance, they risk losing credibility,” said one member. “It starts to feel like they don’t understand how businesses actually operate.”

Flexible working

The provisions for boosting women’s workplace participation, championed by Minister for Women and Equalities, Rt Hon Bridget Phillipson MP, was reasonably well received by ICAEW members. “Supporting women to work flexibly isn’t just good policy; it’s smart business,” said a Birmingham-based member. “Aligning flexible working rights with the challenges women face in career progression is key to unlocking the UK’s full growth potential, giving businesses access to untapped talent and expertise.”

The Bill’s strengthened flexible working rights, which require employers to justify refusals, is a step towards getting more women into work. However, ICAEW members would like to see tweaks to the flexible rights provisions to allow ad-hoc and temporary adjustments. This, they said, would support women better, considering they are still more likely to manage childcare and other caring responsibilities, as well as have to deal with pregnancy- and menopause-related issues.

There is no outright ban on zero-hour contracts in the Bill, following engagement with the hospitality and retail sectors. But there it does introduce a right to guaranteed hours. But ICAEW expressed concerns about the administrative burden of putting this into practice in its briefing to policymakers: “Calculating and updating bespoke hour guarantees for each employee could become an extremely costly, time-consuming exercise for businesses, and if employees do not wish to take up the offer, businesses will get no value in return.”

ICAEW also recommended that MPs consider the following when reviewing the Bill:

• Ease the pressure of cumulative business costs – The government should commit to publishing a review to parliament within one year of the Bill becoming law, remedying any disproportionate negative impacts on the labour market.
• Back business to hire the best – The Bill should be amended to provide certainty to employers that probation can be terminated where reasonable steps have been followed, enabling employers to have confidence that weak claims for unfair dismissal can be struck out efficiently.
• Help SMEs to get it right first time – The government should commit financial support to SMEs in primary legislation, rather than deferring to secondary legislation. This should include a funded advisory support scheme enabling smaller businesses to access professional advice on navigating the administrative and policy changes introduced by the Bill.
• Support women in the workplace – In improving rights for flexible working the Bill should consider job roles and responsibilities alongside changes to working hours, times and locations. It should also allow ad-hoc requests for flexible working and exclude them from the two-request-per-year limit. These changes will help women, who are more likely to manage childcare, caring responsibilities and pregnancy- and menopause-related health challenges, stay and succeed in work.
• Streamline the right to guaranteed hours – Replace the proposed “right to be offered” with a “right to claim” guaranteed hours. This approach would reduce administrative complexity and cost for businesses, while still expanding access to secure working patterns in a way that reflects employee choice and business needs.