Employment Rights Act is already putting the brakes on hiring, CIPD warns

New research from the CIPD suggests the Government’s Employment Rights Act could discourage employers from recruiting permanent staff, add to business costs and increase workplace conflict. The findings come from the CIPD’s latest Labour Market Outlook, based on a survey of more than 2,000 UK employers. It reports that overall hiring intentions remain at their lowest level on record outside the first year of the pandemic.

More than a third of employers (37 percent) said they plan to reduce recruitment of permanent staff as a result of at least one of the Act’s key reforms, including changes to unfair dismissal rules, Statutory Sick Pay, zero-hours contracts and trade union rights. Among those organisations, the net employment balance, the difference between employers expecting to increase staff numbers and those planning to reduce them, falls to minus 5.

Overall, the net employment balance remains low at plus 7, which the CIPD said is the weakest figure recorded outside the pandemic period. The report suggests employers may respond by relying more heavily on temporary workers and self-employed contractors to avoid higher costs associated with permanent recruitment, potentially increasing employment insecurity.

Cost concerns were widespread, with 74 percent of employers expecting the Act to increase employment costs and a further 15 percent unsure. Seventeen percent said costs would rise “to a large extent”, with the figure higher in sectors such as social care (31 percent) and hospitality (28 percent).

More than half of employers (55 percent) also expect workplace conflict to increase due to at least one of the new measures. Only 4 percent believe conflict will fall, while 11 percent said they did not know what impact the reforms would have, suggesting a lack of clarity among some employers about how the changes will affect workplace practices.

Ben Willmott, head of public policy at the CIPD, said the reforms could further undermine recruitment at a time when confidence is already weak. “Against a backdrop of low business confidence and already weak hiring intentions, our research suggests there is a real risk that the Employment Rights Act measures will act as a further handbrake on job creation and recruitment,” he said.

The CIPD is calling on the Government to consult further with employers and business bodies and to consider compromise on measures still to be finalised through secondary legislation. It is also urging ministers to launch a communications campaign to help employers, particularly small firms, understand and prepare for new legal obligations before they come into force.

The organisation also said Acas and the wider dispute resolution system must be properly resourced to help employers comply and avoid tribunal claims. The CIPD warned that Government estimates of the Act’s cost, put at £1 billion, may not reflect the full administrative burden on employers, including the need to update policies, payroll systems and management training. It argued official assumptions that many changes will take employers an hour or less to understand underestimate the time required for effective implementation.

Willmott said the scale and pace of the reforms could lead to confusion and disputes if employers are not given sufficient time and support. “The challenges employers face in understanding and getting ready for so many legislative changes over a short period of time needs to be better understood,” he said. “Smaller businesses in particular will need clear advice and guidance to avoid unintentionally falling foul of the new laws.”

Other findings from the Labour Market Outlook include a median basic pay award of 3 percent for the seventh consecutive quarter, and 15 percent of employers anticipating significant recruitment difficulties over the next six months.