Need to know:
- The Labour government’s Employment Rights Bill will enhance employee rights but there are concerns that proposals could have unintended consequences, adding cost, disadvantaging some businesses and their employees, and affecting recruitment strategies.
- Extending pay gap reporting to ethnicity and disability may require a rethink on data collection but also around the way the information is reported and how the detail shapes the business.
- Industry bodies are calling for a consultative approach to any new legislation but employers can prepare for change by reviewing policies and procedures, and dusting off the business case for benefits.
Reward and benefits professionals are preparing for change as the new Labour government sets out its plans for the UK workplace. And, with these including ‘the biggest upgrade to workers’ rights in a generation’, strategies could face a rewrite.
Jeff Fox, strategic consulting lead at Lockton People Solutions, says: “To-do lists are definitely going to get bigger and more complicated. Labour’s majority means it has the wind in its sails and, while I expect it to be more of an evolution than a revolution, the reward sector needs to be prepared for change.”
More worker rights
Central to the Labour government’s plans is its Employment Rights Bill. This seeks to ban exploitative practices and enhance employment rights, with headline grabbers including a ban on zero-hour contracts and fire and rehire, plus the introduction of day-one rights for sick pay, parental leave and unfair dismissal.
The proposals are welcomed but there are concerns about unintended consequences. Julia Turney, partner at Barnett Waddingham, says: “The introduction of day one rights could affect recruitment strategies. Will employers be recruiting as widely as they are now? The government does need to be careful it’s not dictating to employers. Some people love zero-hour contracts as they help balance life and work commitments.”
Although there is plenty of uncertainty, there are some encouraging signs too. Kate Shoesmith, deputy chief executive officer (CEO) at the Recruitment and Employment Confederation (REC), has noticed a softening of the terminology the government is using. “When Labour launched its new deal for employees in 2021 it talked about banning all zero-hour contracts: now, it’s talking about exploitative contracts. It does depend what the definition of exploitative is.”
Wage reviews
Changes to the way the national minimum and living wages are set will push up costs for employers. Under the government’s proposals, as well as factoring the cost of living into calculations, there will be one rate for everyone aged 18 plus. Using current figures, this would mean 18– to 20-year-olds would see their hourly rate increase from £8.60 to £11.44.
This has benefits but also potential drawbacks. Peter Brauer, CEO of Turning Point HR, explains: “This has huge social and economic advantages but there are big hurdles on the mathematics. Employers can’t just print money: they may need to cut headcount or reduce benefits to cover a higher wage bill.”
Wages may be set to rise but they could also become more visible. Interest in the EU and US pay transparency legislation could mean similar requirements are introduced in the UK, says Charles Cotton, senior policy adviser for reward at the Chartered Institute of Personnel and Development (CIPD). “This could see employers having to include pay information in job advertisements,” he adds.
More pay gap reporting
Provision is also included, through the proposed Draft Equality (Race and Disability) Bill to extend pay gap reporting to include mandatory ethnicity and disability pay gap reporting for organisations with more than 250 employees. This drive towards greater equality is positive, but it may be difficult to implement, says Melissa Blissett, senior consultant – pay gap analytics at Barnett Waddingham. “Employers will need to increase disclosure rates on ethnicity and disability,” she says. “Sensitivities and issues around privacy mean it’s very difficult to get people to provide this information. It could take years.”.
As well as creating an environment where employees feel comfortable to disclose these details, there may need to be a rethink on how the data is used. It will be important that it is not just seen as a reporting exercise and the information is used to effect change, says Brauer.
Pensions review
Pensions are also under the spotlight with a new Pensions Schemes Bill included in the King’s Speech and a review due to report back later this year. These aim to boost defined contribution pension pots by more £11,000 by cutting waste and improving investment.
Fox welcomes the objectives but warns that employers need to be ready for change. “There’s a £22 billion hole in the public finances so something has to give,” he says. “I expect we’ll see changes to pensions, perhaps a 30% cap on tax relief.”.
An increase in contributions for both employers and employees is also possible to ensure people save enough for retirement. Additionally, the Labour government could reduce the minimum age for automatic-enrolment from 22 to 18 and lower the minimum annual earnings threshold from £6,240 to £1 for employer contributions.
All this uncertainty is causing a hiatus in workplace pension planning. “I can’t imagine any employer would conduct a review of [its] pension scheme while the government is looking to make changes,” says Turney.
Health improvements
Change is also expected around health and wellbeing, with the Labour government keen to improve the NHS, promote prevention and improve mental health provisions. As employers already provide considerable support in this space, it is essential that government works in partnership with them on any reforms, says Cotton. “The government can’t rely on employers to sort out the problems in the NHS,” he says. “Even if employers are paying for people to be treated, it’s just moving waiting lists around. It needs a more joined-up approach.”
Employers could also find themselves dealing with a broader range of workplace health issues to support the government’s goal of getting people back in employment following the pandemic.
This could lead to a rethink in benefits, with employers offering more flexible hours, back-to-work plans and greater manager support and training around it, says Mark Simmonds, director, health and benefits at Willis Towers Watson (WTW). “Employer-funded schemes, such as group income protection, provide a comprehensive range of services designed to support a back-to-work programme,” he says, adding that insurers point to success rates of 80% to 90% in helping employees return to work.
Prepare for change
With the new government keen to implement so much change across the workplace on a bid to drive productivity, industry bodies are keen to see it consult on its proposals. “It needs to be a collaborative effort,” says Shoesmith. “Businesses have been through a tough time over the last few years: changes need to work for everyone.”
While everyone waits to see what is proposed, many major reward projects are expected to be put on hold. However, it is a good time for employers to prepare for change, says Fox. “HR and benefits professionals should review their policies and procedures now so they know exactly where they stand when changes are announced,” he explains. “It’s also prudent to strengthen the business case for benefits. Questions are likely to come, especially around cost, so return on investment data will be important.”
And, with the Labour government promising to deliver more detail within its first 100 days, having a good understanding of the role of benefits and reward within the business will make any changes easier to implement.
