FTI Consulting Public Affairs Snapshot: The Employment Rights Bill – What Labour’s “Plan to Make Work Pay” Means for Businesses.

Politically, it marks a key moment for the fledgling Labour government. After weeks of high-stakes negotiations, Deputy Prime Minister Angela Rayner and Business Secretary Jonathan Reynolds will be pleased to have published a 149-page bill in the nick of time.

Yet the Bill was also striking for its omissions. In a last-minute concession to business, the floated “right to switch off” and introduction of a single status of worker have been delayed, included only in a “next steps” document of further reforms the government will “look to implement in the future”.

Indeed, the introduction of this Bill might best be described as the starting gun on Labour’s “plan to make work pay” and businesses will be most interested in the thorny issue of what happens next.

The answer, operationally, is very little right now. Acknowledging that “adjusting to these new reforms will take time”, the government has committed to an extensive consultation period, which means that most of these changes will kick in no earlier than 2026. Businesses will welcome the time to engage, and the government will be relieved to have deferred its most difficult decisions.

The most contentious of these include defining what makes a zero-hours contract “exploitative”, determining the level of statutory sick pay for lower earners, and clarifying the new-look dismissal process: probation periods are to remain, yet some protections from unfair dismissal will kick in from day one. Recognising concerns, the government has confirmed that this measure will come into effect in Autumn 2026 at the earliest – in the words of one business group, “the fight has been postponed”.

But although nothing is changing today, employers should be wary of resting on their laurels. To leverage the benefits and mitigate the risks of this more employee-centric system, businesses should begin preparatory work now: assessing staffing models, preparing clear policies for flexible working requests, and updating codes of practice, both on harassment and employee dismissal. This is also the moment to consider any blind spots in the draft legislation; businesses who engage early will be more likely to have their concerns taken seriously.

And government is, for the time being, in listening mode. Senior civil servants at the Department for Business and Trade (DBT) have signalled a willingness to engage with business – both through formal consultations and outside of them – and made clear that they want the new regulations to be properly calibrated with the needs of businesses large and small.

Yet government will also be aware of divisions within the business community. Several larger employers have formed a tentative alliance with unions – however superficial – to support the Bill, but small business groups have overwhelmingly been critical. That will create tensions.

Indeed, the additional red tape – on sick pay, flexible working, and enhanced statutory leave – is likely to be particularly cumbersome for smaller employers, who often lack the legal and HR teams which large corporates will lean on to ease the transition. The government’s base case is that a happier and healthier workforce is a more productive one, but small business owners have warned that the administrative and financial burden of navigating these new regulations will hold them back, force them to think twice before taking on new employees, and ultimately hinder Labour’s mission to tackle economic inactivity and boost growth. This is likely to be an argument that runs and runs.

Politicians of all stripes will be monitoring the political impact of these reforms closely. Polling undertaken immediately after the election found that the measures were popular amongst all voter groups, but that was when the new government was also riding high. With the effects of this Bill likely to start being felt by workers in the two years before the next election, Labour will hope that these changes will be an integral party of their legacy – and of the argument for a second term.  

The Bill’s second reading today will give us a useful barometer of political reaction, while next year will undoubtedly throw up a series of issues as yet unconsidered. The message to business, however, is to act now – 2026 may seem some way off, but this government is moving fast, and businesses may need to move with it.