Facing up to the threat of the Employment Rights Bill

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As business groups express significant concerns about the UK’s Employment Rights Bill, the Government is being urged to engage in more detailed consultation and consider the potential unintended consequences of certain measures in the Bill,  we talk to Nick Hood, Senior Advisor, Opus Business Advisory Group as UK businesses face up to the impact of the Bill, and the potential negative impacts on growth, employment, and business costs.

“When arguably the most successful British business leader of his generation, Lord Wolfson, CEO of Next uses a speech in the House of Lords to describe a flagship government policy as taking “a wrecking ball to the part-time working practices of millions of people in shops, restaurants, care homes, pubs and many other consumer-facing businesses”, it's time for the UK business community to sit up and take notice.”

“Not that anybody running a labour-intensive business can possibly be unaware of exactly how serious the potential financial and operational challenges coming down the track at them in the shape of the Employment Rights Bill are going to be.  They no doubt share Lord Wolfson’s fears that the government’s plans risk leaving companies “chronically overstaffed”.”

“He went on to warn that If an employer successfully implemented a system to deal with the proposed new ‘low hours’ requirement after the banning of zero hour arrangements, they would have to offer contracts to staff regardless of whether there is any work for those people going forward.”

“The Employment Rights Bill (ERB) legislation which aims radically to reform workers’ rights and employers’ obligations is still currently going through Parliament and consultation with the many interested parties are continuing.  Many of its most contentious measures will not come into effect until some undefined date in 2027.  Yet it’s fundamental importance to the business community and the UK economy are plain to see from the ongoing and increasingly strident commentary coming from a wide range of influential voices, alongside Lord Wolfson.”

“The challenges in undertaking such a comprehensive re-defining of industrial relations are also clear from the philosophical divide being acknowledged by so many of those speaking their minds on the topic.  Everyone agrees that change is needed, but nobody who will have to work with the legislation on a day-to-day basis is happy with the practical implications for British businesses, on the financial and operational fronts.”

Major provisions of the Bill include
The ERB contains many changes, but among its most important are:

• Enhancing protections for gig economy and agency workers, especially tightened notification requirements for shifts and compensation for cancelled shifts.

• Restricting the use of zero-hours contracts by replacing them with guaranteed ‘low hours’ contracts.

• Triggering unfair dismissal, redundancy and sick pay protections as from Day One instead of after various qualifying periods of service.

• Introducing the right to request a more predictable contract after 26 weeks.

• Improved family leave provisions and flexible working rights.

• Stricter penalties for non-compliance with employment law.

• Strengthening the rights of trade unions

So, what does the government think the financial impact will be?
“The government’s own impact assessment published shortly after the ERB’s first draft in October 2024 estimates the annual cost to businesses at £4.5 billion a year, but it warns that the total impact could rise to £5 billion a year.  It also predicts that the new measures could increase the total wage bill for UK businesses by 0.4%.”

“In terms of the growth benefit, the analysis states that the bill would only deliver a “small” positive effect on growth.  It highlights that while some businesses may gain from having more productive and secure workers, others may choose to reduce investment or cut jobs to cope with the increased costs.”

Which sectors will be most affected?
“The reforms are expected to fall harder on certain sectors harder than others. Businesses in lower-paid industries, such as retail, hospitality, and social care, are likely to bear the brunt of the additional financial burdens and have to cope with the most challenging operational changes.”

“The British Retail Consortium (BRC) has been commenting regularly on the ERB since it’s announcement.  In April 2025 it released research into its likely impact.  This revealed that more than 50% of retail HR Directors it questioned believe it will cut recruitment and reduce job flexibility, while 70% say the ERB will have a negative impact on their business.”

“Just like the BRC, UKHospitality has been flagging the challenges of the ERB for its myriad pubs, clubs, bars, restaurants and hotels. It’s most recent comments were in July 2025, when it flagged that hospitality businesses are seriously worried about the cost and complexity of the changes in the Employment Rights Bill, especially those due to be implemented in April 2026 and particularly in the context of the sharp increases to employer National Insurance contributions, the national minimum wage and business rates from last year’s Autumn Budget.  Pointedly, it warned that hospitality businesses simply have no more capacity to absorb additional costs, pleading that the Government must not increase the sector’s cost burden once again or else provide support for the most vulnerable enterprises.”

“A hard hitting assessment of the ERB’s likely impact on its part of the social care sector is provided by the Homecare Association in its most recent comments, which predict that an already highly-fragile industry is at risk of being seriously compromised by its implementation.”

The threat to small businesses
“It is a perennial and inescapable commercial reality that the smaller a business is, the less resilient it is likely to be to significant change, both in financial and operational terms.  Our recent reports on the Retail and Hospitality sectors both highlight the financial vulnerability of small businesses and the high prevalence of fragile, under-capitalised entities.”

“In the case of Retail, 67% of all companies in the sector have total assets of less than £125,000.  Over 30% (31%) of retailers have total assets below £25,000.  For Hospitality, 69% of companies have total assets below £100,000 and 33% have assets less than £25,000.”

“The latest quarterly Sentiment Survey from the Federation of Small Businesses (FSB) in July 2025 highlights the deep worries that its members have over the ERB.  The FSB policy chair branded the ERB “a massive dampener on small firms’ appetite to take on staff”.  They are particularly concerned at the increased rights it would give workers from day one of employment, including protection from unfair dismissal. FSB members had previously warned in another survey that the sick pay changes pose a major threat to profitability for narrow-margin small businesses.”

“Beyond the financial and operational concerns about the ERB expressed right across the business spectrum, a less obvious but possibly more important worry is the effect it is having on business confidence and by extension, the strong probability that it is causing a major hiatus in business investment, without which the UK economy will never escape from its present narrow band of sluggish performance.”

The last straw?
“The ERB is still in its formative stage, with consultation and revisions still in progress. Until the legislation has been finalised, passed and implemented, the full impact can only be a matter of speculation.  Unfortunately, coming at the same time as the last Autumn Budget’s measures, ahead of inevitable tax rises in the next Budget and in the midst of severe geopolitical uncertainty about a global trade war, the timing of such speculation is less than ideal.  Entrepreneurs are endlessly resourceful and business models astonishingly adaptable, but even so the ERB will be the death knell for some companies.  The question is: how many?”