15 November 2024
Paul Chamberlain, head of employment law, JMW Solicitors LLP, outlines the main proposals set out in the Employment Rights Bill that payroll professionals should be aware of and their likely impact on the industry
Following the King’s Speech on 17 July 2024, the Employment Rights Bill was released on 10 October. The proposed changes mark a significant shift in employment regulation. This article introduces the key proposals and the effect they are likely to have on businesses’ payroll departments. It also offers advice on how payroll professionals / providers can best prepare for the changes and considers what the Bill generally means for employers.
Zero-hours contracts
Clause 1 of the Bill proposes that if a worker is under a zero-hours or minimum hours contract, the employer has an obligation to offer them a guaranteed hours contract. This will be based on the number of hours the employee worked during the previous reference period. According to the consultation paper, ‘Consultation on the Application of Zero Hours Contracts Measures to Agency Workers’, it’s expected the reference period will be set at 12 weeks.
As there are currently around 1.03 million people on zero-hours contracts in the UK, many workforces will inevitably be affected by the changes. Payroll teams are likely to already have appropriate methods in place to keep accurate records of staff working hours for HM Revenue and Customs purposes and to ensure compliance with national minimum wage legislation. However, as we move from a zero or minimum hours to a ‘guaranteed hours’ system, more responsibility will rest on payroll teams to keep continuous and precise records of workers’ recent working hours. This will ensure employers can determine the hours worked within the relevant reference period that is to be finalised following responses to the consultation paper.
The upshot of the right to guaranteed hours contracts for employers is that they will need to find alternative ways to manage staffing where both the business and the worker want the benefits of flexibility. One alternative could be that the business offers zero-hours contracts on condition that they offer candidates a contract with a set number of hours too. Employers should pay close attention when reading the consultation paper and prepare alternative staff management options while the consultation process is ongoing.
Unfair dismissal
Clause 19 of the Bill provides that the qualifying period of service, which is currently two years, will be removed for the purposes of ordinary unfair dismissal. This means employees will have the right to claim the right from day one of their employment.
A new statutory probationary period will be finalised through consultation. It is expected this will be set at six months. However, there is commentary that suggests a nine-month period may be favoured.
The government has estimated that nine million employees will have the right to claim ordinary unfair dismissal under the changes. That said, employees’ right to access this type of claim will probably still depend on them completing a successful period of probation.
The ambiguity surrounding the new statutory probationary period is hardly reassuring for employers. In particular, there is increased potential for new recruits who are simply unsuited for the role to launch tribunal claims, which could deter businesses from taking on new hires. Employers should monitor workers carefully during their probationary period and address any performance issues at the earliest opportunity.
Statutory sick pay (SSP)
The Bill proposes to implement the following two key changes to SSP:
waiting period: removal of the requirement to serve a three-day waiting period of sickness absence, before being paid SSP on the fourth day of absence
Lower Earnings Limit (LEL): extending eligibility for SSP to those earning less than the LEL.
The current law requires employees to serve three days of sick leave before they can qualify to receive SSP on the fourth day of absence. The Bill aims to remove this requirement and make SSP payable from the first day of sickness.
To prepare for this change, payroll professionals simply need to be aware that the starting day for SSP will be the first day of the employee’s absence and adjust their procedures that calculate sick pay to reflect the same.
Present legislation provides that an employee must earn a minimum of £123 per week in order to be eligible for SSP. This is known as the LEL. The Bill proposes to revoke the exclusion of those who earn less than the LEL so that all employees, regardless of their salary, will receive sick pay.
In the ‘Strengthening Statutory Sick Pay’ consultation paper, the government acknowledges that there are people who earn less than the LEL and therefore don’t get the flat SSP rate of £116.75 per week. In those instances, it would be unfair to pay such employees the flat rate of SSP because they would be paid a greater amount in sick pay than they would through their usual wages. The consultation therefore suggests a taper be applied to the current SSP rate “whereby an employee is entitled to a certain percentage of their average weekly earnings or the current SSP flat rate, whichever is lower”.
The consultation invites employers and employer / business representative organisations to provide their views on what this “certain percentage” of earnings should be. The CIPP will be responding to the consultation and the policy team is arranging a think tank for full, fellow and Chartered members. Invitations to attend will be sent out in due course.
Fire and rehire
Clause 22 of the Bill will make the dismissal of an employee based on their refusal to agree to a contract variation automatically unfair.
As previously mentioned, there will be no two-year qualifying period once this is actioned. Under the proposal, the dismissal of an employee will be deemed automatically unfair if the principal reason for dismissal is as follows:
l the employee refused to agree to a variation of contractual terms requested by the employer or
l to enable the employer to hire another person (or recruit the same employee) under a new contract with new contractual terms but with substantively identical duties.
There will be a defence available to employers where they are in dire financial difficulties and about to fall into an insolvency situation. However, this will be a very difficult defence to invoke as it relies on the dismissal being essential in order to prevent total company collapse.
To prepare for the changes, employers are advised to take great caution from the outset when defining terms and conditions of contracts of employment. In the first instance, employers should think very seriously about whether they want to include certain terms as they will most likely be unable to change them later through the use of a ‘fire and rehire’ exercise.
This article featured in the December 2024 - January 2024 issue of Professional.