Understanding the Employment Rights Bill 2024: What Start-ups and SMEs Need to Know

On 10 October, the UK Labour Government published the Employment Rights Bill 2024. This Bill includes significant reforms to employment rights and has been described as a “once in a generation” shift for workers across the UK. Its goal is to deliver economic security and foster growth for businesses, workers, and communities alike. The Bill includes 28 specific employment reforms, with further details to come through subsequent regulations. The Government has committed to additional consultation with stakeholders on some of these reforms and while the majority of these reforms won’t take effect until 2026, it is critical for businesses to start preparing now.

The Government has also published the “ Next Steps to Make Work Pay” document, outlining its vision and long-term plans for additional reforms. Below are key highlights of the proposed changes and how these changes could affect employers.

Navigating the Employment Rights Bill for Start-ups and SMEs

The Employment Rights Bill, published by the Labour government on day 98 of their administration, marks the beginning of a substantial shift in UK employment law. For start-ups and SMEs, navigating these changes will be critical to maintaining compliance and fostering a positive work environment. Below, we summarise the key proposals and highlight those that will pose the greatest challenges for start-ups and SMEs.

Key Proposals in the Employment Rights Bill

1. Right to Unfair Dismissal from Day One

 One of the most publicised changes is the extension of unfair dismissal protections to day one of employment. However, during the initial probationary period, employers will still have more flexibility to dismiss an employee for poor performance or misconduct, as long as notice is given.

 This change will require Start-ups and SMEs to handle probationary dismissals carefully, documenting any performance issues early. Additionally, employers should review their onboarding and training processes to mitigate the risk of dismissals leading to claims.

SMEs and start-ups, often reliant on quickly assessing and managing new hires, will need to adapt. Ensuring that probationary periods are handled effectively, with clear communication and documentation, will help to minimise legal risks.

2. Zero-Hours and Minimum-Hours Contracts

While zero-hours contracts are not banned, new rules require employers to offer guaranteed hours after a set reference period. The Bill proposes significant changes to how zero-hours workers are treated. Workers who consistently work more hours than specified in their contracts over a 12-week reference period will have the right to be offered a guaranteed-hours contract. Employers must also provide reasonable notice of shift changes or cancellations. If no notice is provided, employees will be entitled to the pay they would have earned for that shift.

This will add complexity for businesses that rely on highly flexible workforces, particularly those in seasonal industries. Start-ups that operate with fluctuating demands will  need to prepare for these changes by reviewing their contracts and workforce management strategies. Businesses relying on zero-hours contracts will need to ensure compliance by monitoring employee working hours closely and offering guaranteed-hours contracts when necessary. 

3. Statutory Sick Pay (SSP)

Employees will be entitled to SSP from day one of illness, and the current three-day waiting period will be removed. Additionally, the Lower Earnings Limit will be abolished, extending SSP to more employees.

Startups and SMEs, who currently only offer SSP should prepare for the increased financial responsibility of paying SSP from day one. With a wider range of employees now eligible, this could add further strain, especially for businesses already working with tight cash flows.

4. Day-One Rights for Paternity and Parental Leave

The Bill abolishes the qualifying period for parental and paternity leave, making these rights available from the first day of employment. It also removes the restriction that prevents employees from taking paternity leave after shared parental leave.

Start-ups and SMEs will need to adjust their HR policies to account for the immediate availability of these family-related leave rights. Planning for workforce coverage during these periods of leave will be essential to ensure business continuity.

4. Protection from Sexual Harassment

Employers will now have a duty to take “all reasonable steps” to prevent sexual harassment, and this includes third-party harassment. The Bill strengthens liability for employers by explicitly including harassment by third parties (such as clients or customers).

Start ups and SMEs, particularly those in customer-facing industries, should implement robust anti-harassment policies and training. Businesses will need to ensure all employees understand their rights and how to report issues, even if the harassment comes from an external party.

 4. Stricter Rules on Redundancy

The Bill removes the “one establishment” requirement for collective redundancies, meaning that employers with multiple sites will need to account for redundancy plans across all locations. This could create administrative complexity for businesses managing redundancies and increase the likelihood of triggering collective consultation requirements.

5. Fire and Rehire Practices

The Bill significantly limits the use of "fire and rehire" practices, where employers terminate an employee’s contract and offer them a new one on different terms. This will only be permitted in cases of serious financial difficulty, and even then, employers must demonstrate that they have consulted with employees. This change could complicate efforts to restructure or pivot, a common necessity for start-ups trying to scale rapidly or manage market fluctuation.

This change will make it harder for businesses to restructure quickly by adjusting employee terms. Businesses will need to explore alternative ways of managing financial distress or consult thoroughly with employees before making such changes.

6. Flexible Working

 Employers will need to justify any refusal of a flexible working request under a "reasonableness" test. This change is not revolutionary, but it does lower the threshold for employees to challenge refusals, and in an SME or start-up environment where resources are often stretched, managing these requests fairly and efficiently will require careful planning. 

Businesses will need to review their current policies on flexible working and ensure that requests are managed fairly and consistently. With limited resources, small businesses might face challenges balancing operational needs with employee requests for flexible hours.

The Current State of the Bill

The Employment Rights Bill is still in its early stages. While it has been published, most reforms are not expected to take effect until 2026, with significant consultation and regulatory development required in the interim. The Labour government has made it clear that the bill will evolve through this process, and businesses should expect further guidance and potential amendments.

Key exceptions include changes to statutory sick pay and trade union reforms, which are expected to be implemented sooner. 

Sick pay will now be payable from day one of illness, and there will be no lower earnings threshold for eligibility. These changes, particularly relevant for businesses in industries where sickness absence is common, may require immediate updates to their internal policies.

How Start-ups and SMEs Should Prepare

- Review contracts and policies: Ensure employment contracts are updated to reflect their legal  obligations, particularly around zero-hours contracts and flexible working.

- Implement robust HR systems: Streamline HR processes to manage requests for flexible working, sick leave, and family leave efficiently.

- Invest in training: Educate management and staff on new rights related to harassment, dismissals, and contractual changes to ensure compliance and foster a positive work environment.

- Prepare for consultations: Stay informed about the consultation process for the bill and participate where possible. Being proactive can help businesses anticipate changes and make the necessary adjustments ahead of time.

How Protean HR Can Help

Navigating these complex changes can be daunting for start-ups and small businesses with limited HR resources. At Protean HR, we specialise in providing tailored support for start-ups and SMEs, helping you stay compliant while maintaining a positive and productive work environment. Our services include:

- Reviewing and updating employment contracts and HR policies.

- Offering training on harassment prevention and handling flexible working requests.

- Providing expert guidance on redundancy processes and employee relations.

By partnering with Protean HR, you can ensure that your business is prepared for the future of employment law, allowing you to focus on growth and success.

While many of the changes proposed in the Employment Rights Bill will not take effect until 2026, SMEs and start-ups must begin preparing now. By taking proactive steps and seeking expert advice, businesses can navigate these changes smoothly and continue fostering a positive work environment.

For more information on how Protean HR can support your business, contact us today.