The Employment Rights Act is having a huge impact on how small businesses are approaching hiring – and April’s measures could have far-reaching consequences for the very workers it’s designed to protect.
New research from Employment Hero reveals one in five small businesses intend to use more contractors and temporary staff because of the landmark reforms. Separately, Employment Hero’s platform data – drawn from around 4,500 businesses and more than 120,000 employees – shows how much more competitive securing full-time roles is becoming.
A UK Jobs Market Split in Two
In February, Month-on-Month (MoM) employment growth in part-time roles fell 0.3%, while full-time employment grew 0.9% over the same period. The figures raise important questions about the impact on worker protections more broadly. While changing tack is useful for SMEs seeking to mitigate the financial knock-on effects of the Employment Rights Act, pivoting away from full-time roles could lead to broader gulfs in the jobs market.
The acceleration of this model of hiring could also mean full-time roles that come with statutory entitlements like sick pay, guaranteed hours and employment benefits could become even more competitive, while contractors and freelancers, who typically sit outside those entitlements, could find fewer routes to securing those protections.
How Small Businesses Are Responding to the Employment Rights Act
For most small businesses, the move toward flexible hiring isn’t ideological. It’s a rational response to genuine financial pressure. Employment Hero’s survey of 1,047 business owners and senior leaders found that 84% expect to make changes to manage the risks of the upcoming legislation and 78% agree it will have a financial impact on their business. In response, 30% say they may raise prices to absorb the additional cost burden, while 29% are reviewing salaries and benefits.
Of course, not all workers are looking for permanent roles. For many, contracting and freelance work is a deliberate and rewarding career choice. But for those who want the security of permanent employment, not having a choice in the matter is precisely what the Employment Rights Act was designed to prevent.
Which Parts of the Employment Rights Act Are SMEs Most Worried About?
The changes small business leaders say are causing the most concern include flexible working requests (35%) and the move to make statutory sick pay a day-one right for all employees (25%). But the single biggest worry, cited by 40% of respondents, is the National Minimum Wage increase, which takes effect in early April along with a number of other Employment Rights Act measures.
Zero hours contracts remain a sticking point too. While the Employment Rights Act introduces a right to guaranteed hours for qualifying workers, the concern that remains is whether that added complexity will result in some employers restructuring roles before the rules apply.
Kevin Fitzgerald, UK Managing Director at Employment Hero, echoes concerns about the potential for businesses to change course on hiring.
He said: “Businesses may rationally respond to added complexity by shifting toward contractor and freelance models, but that shift could come at a cost to workers who end up outside the system entirely. The conversation so far has focused on what the reforms mean for businesses. We think it’s time to ask what they mean for the people they were supposed to help.”
How Much Do Small Businesses Understand the Employment Rights Act?
What complicates all of this is how many business owners are making strategic workforce decisions without a clear understanding of what the legislation requires. Only 28% of those surveyed said they understood the specific requirements of the reforms. And more than one in four (26%) admitted to having little to no knowledge at all.
What’s clear at this stage is that small businesses are already adjusting hiring strategies and reviewing pay structures in response to rules many of them can’t fully explain. That’s a significant amount of structural change being driven by uncertainty as much as by any deliberate plan.
