Employment Rights Bill: Could Contractors Be the ‘New Normal’ for Businesses?

If you’re an employer, you need to be aware of a new piece of legislation that’s about to come into effect: the Employment Rights Bill.

Dubbed the ‘biggest upgrade to workers’ rights in a generation’, this bill is going to impact any company that employs someone, regardless of size.

So, what is the Employment Rights Bill, and what will it mean for your business?

What is the Employment Rights Bill, and what is changing?

The Employment Rights Bill is the Labour government’s first major piece of legislation focused on employment, and the flagship bill of the Plan to Make Work Pay, which is ‘designed to help more people to stay in work, support workers’ productivity and improve living standards. 

The key measures included in the bill are:

1. Increase to National Minimum Wage
2. Extension of Statutory Sick Pay
3. Enhanced protection against unfair dismissal
4. Rights to a guaranteed house
5. Right to ‘reasonable notice’ of shifts for workers on zero-hour contracts, and right to payment for cancelled, moved or curtailed shifts at short notice
6. Restrictions on ‘fire and rehire’

Let’s take a look at each one in more detail.

Increase to National Minimum Wage and National Living Wage

Both the National Minimum Wage (for workers of at least school leaving age) and National Living Wage (for workers aged 21 and over) are set to increase from April 2025 as follows:

21 and over: £11.44 to £12.21

18 to 20: £8.60 to £10.00

Under 18: £6.40 to £7.55

Apprentices: £6.40 to £7.55

Extension of Statutory Sick Pay

Currently, workers must be sick for more than three consecutive days to earn Statutory Sick Pay (SSP)—a minimum of £123 per week (increasing to £125 from April).

However, the Employment Rights Bill is extending SSP to all workers from the first day of sickness. If your business breaches rules relating to SSP, it will be subject to penalties levied by the Fair Work Agency, a new body being set up by the bill that will bring together existing state enforcement functions and subsequently take on a wider scope of employment rights issues.

Enhanced protection against unfair dismissal

Under current legislation, workers can only claim unfair dismissal after two years of employment. Under the Employment Rights Bill this qualifying period will be removed and replaced with a nine-month statutory probation period, allowing businesses more time to assess a worker’s suitability for a role, while strengthening their rights from the first day of employment.

As a result, businesses will have to implement more robust HR procedures and practices, and update employee contracts, the staff handbook and performance management policies.

Rights to guaranteed house

The Employment Rights Bill bans zero-hour contracts with a new requirement for businesses to guarantee a certain number of hours to workers—unless they explicitly opt to continue working on a zero-hour contract basis.

The number of hours a worker is guaranteed will be based on the number of hours worked over a 12-week reference period.

Right to ‘reasonable notice’ of shifts for workers on zero-hour contracts, and right to payment for cancelled, moved or curtailed shifts at short notice

In addition to guaranteed hours, the Employment Rights Bill requires businesses to provide a ‘reasonable’ amount of notice before changing a worker’s shift pattern, including cancelling, moving or curtailing them.

If you fail to provide reasonable notice, workers will be entitled to compensation.

Restrictions on ‘fire and rehire’

The new bill bans the practice of fire and rehire—the practice of firing workers and then rehiring them on less favourable terms, whether that’s lower pay or fewer hours.

The exception to this is if it is to avoid serious financial threats to your business, for example if the company was at genuine risk of insolvency.

Are contractors set to benefit?

While these planned changes are reasonable, and positive for employees, there will inevitably be increased costs and a greater administrative burder for businesses, which will be most keenly felt by small businesses.

According to the Office for National Statistics (ONS) there is already a decline in the jobs market, with vacancies falling by 24,000 between October and December 2024—the fastest rate since August 2020.

By contrast, contractor jobs are on the rise.

The Association of Professional Staffing Companies (APSCo) reported a 17% increase in contract roles between November 2024 and January 2025, and we expect to see this continue as the effects of the Employment Rights Bill come into force, not to mention the increase to employer National Insurance Contributions also coming in April.

Against this backdrop, freelancers and contractors will likely become more appealing to businesses that want to retain more flexibility in their hiring practices.

How we can help

Here at Warr & Co we have years of experience helping both contractors and the businesses that hire them.

Our dedicated contractor accountancy team will create a bespoke package for you that is designed to suit your specific requirements, whether you’re a contractor working in IT, management consulting, process engineers or legal consultants.

To find out more about how we can help you, book your free contractor accounting consultation now, or get in touch with the team here.