The Hidden Costs of the Employment Rights Bill – What SMEs Need to Prepare For Now

1. Increased Payroll Costs

Guaranteed hours under zero-hours reform:
Employers who rely on zero-hours workers will soon face a new legal obligation to offer minimum guaranteed hours where employees request them. This will:

• Limit staffing flexibility for seasonal or shift-based workforces.
• Increase wage bills during off-peak periods.

Sick pay reforms:

The removal of the SSP lower earnings limit means 1.3 million extra workers will now qualify for day-one statutory sick pay, even for short-term illnesses, adding another layer of unexpected payroll pressure.

2. Legal and HR Administrative Burden

• Day-one unfair dismissal rights mean more SMEs will need to implement robust onboarding, probation, and dismissal processes from the start.
• Flexible working requests will rise — and each refusal must be formally processed and justified with evidence.

Without formalised HR policies and documentation, SMEs risk:

• Tribunal claims.
• Compensation payouts.
• Time-draining disputes diverting resources from core business activities.

3. Training and System Investments

• SMEs will need to train managers on new flexible working and dismissal rules.
• Businesses may need to invest in HR technology to track sickness absences, flexible working requests, and guaranteed hours allocations.
• Remote or hybrid requests may require IT infrastructure upgrades to enable secure off-site working.

4. Knock-on Effects on Recruitment and Retention

• Employer brand damage: Mishandling flexible working or dismissal cases could harm your reputation and make recruitment harder.
• Retention challenges: Employees increasingly expect modern, flexible workplaces, particularly post-pandemic.

SMEs that lag behind will lose out to more agile or compliant competitors who offer progressive and legally compliant work environments.

So What Can SMEs Do Now?

Proactive Steps to Protect Your Business

• Complete a contract and policy audit: Are your employment terms up to date and aligned with the Employment Rights Bill?
• Assess workforce structure: Are you overly reliant on casual or zero-hours workers?
• Train your people managers: Ensure they understand day-one dismissal protections, flexible working processes, and fair handling of guaranteed hours requests.
• Consider legal and HR partnerships: Outsourcing HR support can help SMEs avoid costly mistakes and stay up to speed with legal developments.

The Upside: Opportunities for Forward-Thinking SMEs

While the bill introduces costs, there are also upsides for SMEs who adapt early:

• Boost staff retention by offering fairer, more secure contracts.
• Attract new talent with modern, flexible working arrangements.
• Strengthen HR processes, reducing risks of tribunal claims.
• Position your business as an employer of choice, especially in sectors where flexibility and security are valued.