Reforms to workplace rights could cost businesses up to £5bn a year, according to the government's own analysis, which also found the changes will benefit low-paid employees most, with some shift workers potentially earning £600 additional per year.
In the analysis, the government acknowledges that businesses will end up paying more, including for changes to sick pay, paternity leave and zero-hours contracts, as well as administrative costs.
However, it found that many of the physical and mental health benefits for families and workers would save significant sums.
Speaking in parliament ahead of the second reading of the bill on Monday, Deputy Prime Minister Angela Rayner said most employers were already complying with the changes stipulated in the bill.
He said strengthening workers' rights would help the economy grow in the long term: “Successful companies already know that strong employee rights mean great opportunities for growth. “This landmark legislation will extend the workplace protections provided by Britain’s best businesses to millions more workers.”
Shadow business secretary Kevin Hollinrake said the costs “could sink” some businesses, particularly those hit by new job applications. “This is not a labor rights bill but a union charter,” he said.
The government said the costs were minimal (less than 1.5%) compared to total employment costs and that most of the cost would represent a redistribution from companies to their workers. Total wage costs in the UK amounted to £1.3 trillion in 2023.
Business groups said they risked being “buried under a mountain of additional costs” and warned against rushing through the measures.
Shevaun Haviland, of the British Chamber of Commerce, said: “The burden of costs will fall hardest on the millions of small and medium-sized businesses that 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 achieve that goal. But that cannot happen if companies are buried under a mountain of additional costs.”
UKHospitality, which represents pubs, hotels and restaurants, welcomed the bill, but its chief executive Kate Nicholls called on the government to “fine-tune the details, through close consultation with businesses to avoid unintended consequences”. He said zero hours contracts were the contract desired by 90% of people on them, who wanted flexibility.
A near-ban on zero-hours contracts is the biggest cost, totaling £2bn. The government said the right to guaranteed hours could cost up to £1bn (much of which would be passed on directly to workers) and the right to reasonable notice of shift cancellation could also cost £1bn.
The analysis said that the government “expects[s] “Business behavior will change so fewer shifts will be cancelled, but the value of inevitable cancellations could still reach £120m a year.”
The change is expected to save workers a significant amount of money, not only pay for missed shifts, but also wasted additional costs for child care or transportation, called the “insecurity premium.” The government said that could mean £600 a year for some, which is more than £250 a year more than the last two cuts to national insurance.
The analysis found that it would cost around £100 million to enforce the right to unfair dismissal claims from the first day of a new job, although the policy was likely to reduce the risk of employees changing jobs.
On current patterns, the new rights could also lead to a significant increase in mediation or legal action: an increase of around 15%, which would mean an additional 20,000 complaints to the Acas mediation and arbitration service, 4,750 cases more in the employment tribunals and a further 875 cases which may require a full hearing.
Other costs likely to be incurred are up to £1bn in changes to statutory sick pay, and around £100m in costs each for new entitlements such as bereavement leave, first-year paternity leave. day and unpaid parental leave. Department for Work and Pensions analysis suggests the additional payments made by employers are expected to cost around £400 million 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 comprehensive home life. It said 17 million working days were lost due to stress, depression or anxiety, equating to more than £5 billion of lost production in a single year.
Ministers and the Trades Union Congress have argued the reforms are popular with voters. TUC general secretary Paul Nowak said: “Despite repeated attempts to present this bill as bad for business, this rigorous impact assessment shows that the business costs are negligible and more than offset by the broader economic and social benefits.
“These changes will mainly affect those companies whose business models have been based on insecure and poorly paid jobs.”