Small businesses could face 'higher cost burden' under new employment laws

Small businesses could face a higher cost burden due to the Government’s new employment rights plans, according to Whitehall’s own assessment of the legislation.

The Employment Rights Bill will give MPs their first chance to debate the main points of the plans in the Commons. The bill includes plans to enhance employees’ rights from day one of employment, covering areas such as parental and bereavement leave and protection from unfair dismissal.

The economic analysis of the Bill, released by the Department for Business and Trade on Monday, suggests that it will "strengthen working conditions for the lowest-paid and most vulnerable in the labour market, increasing fairness and equality across Britain," but acknowledges that "delivering those benefits will place a direct cost on employers".

The document estimates that the costs to businesses will be in the "low billions of pounds per year" and warns that firms relying on low-paid workers or employees on flexible contracts could find the changes "be more disruptive". Overall, the plans are predicted to add "less than 1.5%" to employment costs.

The "fixed costs of admin and compliance burdens" will result in "proportionately higher" costs for small and micro businesses. However, the Government insists that rules must apply uniformly to all businesses to avoid creating a "two-tier workforce" where some individuals have rights while others do not.

The document also cautioned that reforms to day one rights, particularly strengthening protections against dismissal, could make employers less willing to hire workers. According to the analysis document, policies such as guaranteed hours with zero hours contracts and day one unfair dismissal rights are among the changes likely to disproportionately cost small and micro businesses.

The proposed changes to statutory sick pay, including removing the lower earnings limit and waiting period, are certain to disproportionately impact small and micro businesses. The Government document states they "intend to refine this assessment" as the policy develops and believes the "benefits will outweigh the costs".

The Prime Minister’s official spokesman said: "What this Bill represents is an investment by businesses, by employers into their employees. For too long poor productivity, insecure work and broken industrial relations have held back the economy."

"Last year we saw the highest number of working days lost to strikes since the 1980s, costing the economy billions of pounds."

The spokesperson added: "The impact assessment says it will have a positive impact on economic growth. But of course, this is not everything the Government is doing to support economic growth in the economy."

The Trades Union Congress (TUC) raved about the assessment on Monday afternoon, explaining that the legislation is "good for workers, good for business and good for the wider economy". TUC General Secretary Paul Nowak stated: "Most employers in this country treat their staff well and do not use exploitative practices like zero hours contracts and fire and rehire."

He added: "By levelling the playing field on workers’ rights and protections this Bill will give people more predictability and control over their lives. And it will stop decent firms from being undercut by the bad."

"These reforms will improve the health of our workforce, bring real economic gains and ensure working people share fairly in the gains of growth."

Under their promise of 'good work', Labour’s manifesto vows to be the cornerstone of battling inequality, mentioning: "We will create more good jobs, reform employment support, and make work pay so that many more people benefit from the dignity and purpose of work," as per the published manifesto.