Employment rights reforms will cost businesses up to £5bn a year, the government’s own analysis has warned. But low-paid employees will see most of the benefit, with some shift workers earning an extra £600 a year.
In the analysis, the government acknowledges that businesses will end up paying more, including on reforms to sick pay, paternity leave and zero hours contracts as well as administrative costs.
It found that many of the mental health and physical benefits to families and workers would save significant sums, however.
Speaking in parliament before the bill’s second reading on Monday, the deputy prime minister, Angela Rayner, said that most employers were already complying with the changes stipulated in the bill.
She insisted that the strengthening of workers’ rights would help the economy grow long-term, saying: “Successful firms already know that strong employee rights mean strong growth opportunities. This landmark legislation will extend the employment protections given by the best British companies to millions more workers.”
But the Conservative shadow business secretary Kevin Hollinrake said the costs “could sink” some businesses, particularly those hit by new employment claims. “This is not a employment rights bill but a trade union charter,” he said.
The government said the costs were minimal – less than 1.5% – when compared with total employment costs and that most of the cost will represent a redistribution from firms to their workers. Total wage costs in the UK were £1.3tn in 2023.
Business groups said they risked being “buried under a mountain of additional cost” and warned against rushing the measures through.
Shevaun Haviland, of the British Chambers of Commerce, said: “The cost burden will fall hardest on the millions of small and medium-sized firms which are the backbone of the economy.
“Business anxiety is already growing ahead of next week’s budget. We share the government’s desire to see sustained economic growth and are committed to working with them to reach that target. But that can’t happen if businesses are buried under a mountain of additional cost.”
UKHospitality, which represents pubs, hotels and restaurants, welcomed the bill but its chief executive, Kate Nicholls, called on the government to “get the details right, through close consultation with businesses to avoid unintended consequences”. She said zero-hours contracts were the desired contract for 90% of people on them who want flexibility.
A near-ban on zero-hours contracts is the biggest cost, totalling up to £2bn. The government said the right to guaranteed hours could itself cost up to £1bn – much directly passed on to workers – and the right to reasonable notice of shift cancellation could also cost £1bn.
The analysis said that government “expect[s] that business behaviour will change so fewer shifts are cancelled, but the value of unavoidable cancellations could still be as high as £120m a year”.
The change is projected to save workers significant money – not just payment for shifts missed but for the costs of extra wasted childcare or transport, dubbed “the insecurity premium”. The government said that could be £600 a year for some, worth over £250 more a year than the last two national insurance cuts.
The analysis found it would cost around £100m to enforce the right to unfair dismissal claims from day one of a new job, though it was likely the policy would reduce the risk to employees of switching jobs.
Based on current patterns, the new rights could also lead to a significant rise in mediation or legal action – an increase of about 15% which would mean an extra 20,000 additional complaints to the Acas mediation and arbitration service, 4,750 more employment tribunal cases and 875 additional cases which may require a full hearing.
Other costs likely to be incurred are up to £1bn in the changes to statutory sick pay, and around £100m in costs each for new right such as bereavement leave, day one paternity leave and unpaid parental leave. Department for Work and Pensions analysis suggests the extra payments made by employers are expected to cost around £400m a year.
In the analysis, the government said there were benefits that could not be easily quantified in terms of secure work and a more well-rounded family life.
It said that 17m working days were lost due to stress, depression or anxiety, equivalent to over £5bn of lost output in a single year.
Ministers and the Trades Union Congress have argued that the reforms are popular with voters. The TUC’s general secretary, Paul Nowak, said: “Despite repeated attempts to paint this bill as bad for business, this rigorous impact assessment shows that the business costs are negligible and are more than offset by the wider economic and social gains.
“These changes will mostly affect those companies whose business models have been built on low-paid, insecure employment.”
