The Labour Party has announced several key changes to employment legislation that will impact recruitment agencies.
They plan to implement these within the first 100 days of forming a new government. Although the timeline may extend due to necessary consultations and legislative processes, these changes will significantly impact employment risk and costs in the UK.
Proposed changes to employment legislation:
1. Equal terms for workers and employees:
Legislation will likely be amended to ensure workers receive the same employment rights and benefits as employees.
2. Day one rights for all workers:
Workers are to be entitled to parental leave and sick pay from their first day of employment, increasing costs for employers. Statutory Sick Pay (SSP) will very likely rise from the current £116.75/week.
3. Unfair dismissal protection from day one:
Workers are to be protected from unfair dismissal from the start, likely including structured probationary periods.
4. Removal of waiting periods and earnings limits:
Statutory payments will no longer have waiting periods or earnings thresholds.
5. Ban on extensive use of zero-hours contracts:
If legislation is enacted, contracts may need to reflect actual working patterns after 12 weeks.
6. Increased reporting requirements:
Employers will be required to ensure compliance with the new regulations through enhanced reporting.
Impact on recruitment agencies:
Responsibilities:
As a recruitment agency, if you supply contractors to an end client and pay them through agency PAYE, you will be responsible for implementing these new rights. This entails:
- Updating your policies and procedures to comply with enhanced disciplinary measures.
- Accounting for additional costs and risks associated with “day one” statutory payments.
- Adjusting your approach if you currently engage contractors on zero-hours contracts.
Outsourcing solution:
If your contractors are employed by an umbrella company or a Professional Employer Organisation (PEO), they will handle these responsibilities. This can effectively outsource the additional workload, cost, and risk to them.
Your questions answered
Day-one rights for all workers:
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- We expect fixed-term contracts to remain permissible, with workers having full “day one” employment rights throughout the contract. Outsourcing to an umbrella or PEO would still transfer responsibility.
Unfair dismissal rights from day one for temp workers:
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- Temp workers engaged through agency PAYE will gain unfair dismissal rights from day one. You’ll need to update processes and follow full disciplinary procedures to mitigate risks. Outsourcing employment can simplify compliance.
Cost Impact of unfair dismissal claims:
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- Beyond potential awards for successful claims, defending against claims incurs significant costs in time, stress, and legal fees, which might not be recoverable even if successful. Compensation for unfair dismissal is currently up to the lower of £115,115 or one year’s pay, with the weekly pay limit for calculating redundancy pay and basic awards at £700, increasing annually.
Implications for self-employed workers on contracts for services:
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- Genuinely self-employed workers on service contracts won’t be affected as there will be no deemed employer, or they’ll be employed by their PSC. Robust SDC or IR35 assessments are critical to avoid legal repercussions if a worker is later deemed employed.
Costs of day-one rights for statutory payments:
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- Funding statutory payments from day one will increase costs. The specific cost will depend on the worker’s salary and statutory payment rates, which generally rise over time.
In conclusion
The proposed changes to employment legislation by the Labour Party represent a significant shift in how workers’ rights are handled in the UK. For recruitment agencies, these changes mean adjusting policies, procedures, and potentially incurring higher costs.
However, understanding these new regulations and preparing for their implementation, will help navigate the transition smoothly. Outsourcing to umbrella companies or PEOs can mitigate many of these challenges, allowing you to focus on your core business activities.