Employment Rights Bill changes and their effects

With the Employment Rights Bill going through the House of Lords, we look at the key reforms under consideration, and how accountants would be affected. 

The Employment Rights Bill was published on October 10, 2024. The legislation introduced 28 significant reforms to a range of measures that aim to modernise and enhance employment rights for workers.

It includes provisions for zero-hours contracts, fire and rehire, flexible working and unfair dismissal, as well as reforms related to trade unions, industrial action and sexual harassment.

The Bill is currently in the report stage in the House of Lords and has been subject to amendments during its progress through Parliament, which will be considered when it returns to the Commons.

In July, the Government published a roadmap for the Bill’s implementation, outlining consultations and phased implementation dates, beginning those taking effect when it receives Royal Assent and those entering force through to 2027.

Zero-hours contracts

Proposed date: 2027

The Bill does not include an outright ban on ”exploitative” zero-hours contracts, as had been expected. Instead, zero or low hours workers will have a right to guaranteed hours, and payments for short-notice cancellation of shifts, with corresponding rights for agency workers.

Employers will be obligated to offer workers whose hours regularly exceed zero or minimum hours a contract that reflects the hours worked during a 12-week reference period. The threshold for what constitutes a “low” number of hours will be defined in regulations.

This will affect workforce planning and budgeting, particularly in sectors with fluctuating demand. For accountants, this will mean reviewing and potentially adjusting existing contracts, implementing systems to track and calculate the average hours worked by zero-hours workers over the reference period, and considering the impact on payroll.

Fire and rehire

Proposed date: October 2026

The Bill aims to restrict employers’ ability to use ‘fire and rehire’ and ‘fire and replace’ practices where employers dismiss employees and offer to re-engage them on new, often less favourable, terms. It looks to “[close] the loopholes which allow firms to engage in these unscrupulous practices”.

The Bill would make it automatically unfair to dismiss an employee for refusing to agree changes to their employment contract – such as pay, pension, hours of work, holiday entitlement and other changes to be defined in regulations – or for planning to replace them with someone on different terms for the same job.

There will be a limited exception in which a dismissal will not be deemed automatically unfair where the change is in response to financial difficulties affecting the ability of the business to continue as a going concern and could not reasonably have been avoided.

Accountants may be required to verify the financial difficulties an employer claims to be facing by reviewing financial statements, assessing the company’s overall financial health, and potentially engaging with external auditors.

Flexible working

Proposed date: 2027

Employees currently have the right to request a flexible working arrangement from their first day in a job. Employers can refuse based on one or more of the eight business reasons listed in legislation.

The Bill will make it harder for employers to refuse requests by introducing a new requirement for any refusal to be “reasonable”. The ability to refuse a request based on any of the eight reasons will remain, but an employer must explain in writing the grounds for any refusal, and why their refusal is considered reasonable.

Employers will also need to consult with the employee before refusing a flexible working request. The Government will set out in regulations the steps that employers will need to take as part of this consultation.

Accounting firms will need well-defined flexible working policies that outline the process for requesting, assessing and approving these arrangements, and consider factors like client needs, deadlines and team workload.

Unfair dismissal

Proposed date: 2027

The Bill will remove the two-year qualifying period of employment for the right to claim unfair dismissal, making it a day-one right. However, this protection will not apply where the employee has signed a contract but not yet started.

The Government plans to implement a nine-month statutory probation period, during which a “lighter touch” dismissal test will apply if an employee is terminated within three months of the period ending, due to capability, conduct, or legality concerns.

Several aspects of implementation will be consulted on, including the length of the statutory probation period, and how the ‘lighter touch standards’ for dismissal will operate, and the compensatory award rules for unfair dismissal during this period.

Pay and holiday

Proposed date: April 2026

Statutory Sick Pay (SSP) – the minimum statutory payment an employee is entitled to for periods where they are unable to work due to illness – will be made available to all workers, with no waiting period and no earnings threshold.

There will no longer be a three-day waiting period for SSP, and the lower earnings limit (currently £123 a week) will be removed so that all eligible employees, regardless of earnings, will be entitled to SSP at a rate of 80% of weekly earnings.

This may require adjustments to payroll processes and software to accommodate the new rules, including calculating SSP from day one and potentially calculating it based on a percentage of earnings for some employees.

Employers must maintain records demonstrating adherence to statutory holiday entitlement and pay regulations for a minimum of six years. Not maintaining such records constitutes a criminal offence.

Sexual harassment

Proposed date: October 2026

From October 2024, employers are required to take “reasonable steps” to prevent the sexual harassment of staff and agency workers in the course of their employment. The Bill will strengthen the duty to include taking “all” reasonable steps.

Further regulations will set out what amounts to “reasonable steps”, such as carrying out risk assessments and implementing harassment policies and complaints procedures.

Collective redundancy

Proposed date: Increased protective award – April 2026; New threshold – 2027

The Bill will expand the threshold for collective redundancy consultations, which currently kick in when employers propose 20 or more redundancies within a 90-day period at a single site or establishment.

The current threshold will be maintained; however, an additional test will be implemented that considers the total number of redundancies across the whole organisation. This may be defined as either a percentage of the workforce or a specific number of redundancies.

The Bill would also increase the maximum penalty for not meeting collective redundancy consultation requirements from 90 days’ pay to 180 days’ pay for each affected employee.

Equality

Proposed date: Paternity and unpaid parental leave – April 2026; dismissal protection and bereavement leave – 2027

Employers with more than 250 employees currently must publish annual gender pay gap reports covering their employees. The Bill will require them to now produce action plans on how to address their gender pay gaps and on how they will support employees through the menopause.

The Government will also strengthen protections for pregnant workers, making it unlawful to dismiss them within six months of their return to work, except in specific circumstances.

The Bill will also remove the current qualifying period for paternity leave of 26 weeks, and unpaid parental leave of one year, so that employees will be able to take leave from day one.

Parental bereavement leave

This was introduced in April 2020, and will also be extended to the right to at least one week of bereavement leave following the death of a family member. This could also cover pregnancy loss.

Fair Work Agency

Proposed date: April 2026

The Bill will establish a Fair Work Agency that will bring together existing enforcement functions, including minimum wage and statutory sick pay enforcement; the employment tribunal penalty scheme; and labour exploitation and modern slavery, as well as introducing the enforcement of holiday pay policy.

The Agency will also have the power to demand information, enter premises, enforce holiday pay and SSP, issue penalties, bring Employment Tribunal claims on behalf of workers, provide legal assistance and recover enforcement costs.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.