The government has introduced the Employment Rights Bill, set to take effect in 2026. Alongside the recent Autumn budget, these developments have sparked concern among franchisors, franchisees, and other business owners who are questioning the potential effects on their operations.
With over 1,000 franchise systems generating £19.1 billion annually in the UK, the franchise sector is a significant part of the economy. However, the changes bring complex implications for businesses large and small.
The Employment Rights Bill aims to expand worker protections by enhancing job security and increasing employee rights. According to the bill, protections against unfair dismissal will be granted immediately upon employment by removing the current two-year qualifying period. The bill also proposes a statutory nine-month probation period, giving employers more time to assess new hires. Further provisions include a ban on zero-hour contracts, a restriction on fire-and-rehire practices, and mandatory flexible working arrangements where feasible. Additionally, statutory sick pay will be expanded to include all workers, eliminating the current earnings threshold and waiting period.
National Insurance Contribution and Wage Increases
The Autumn 2024 Budget introduces several financial changes that are expected to affect UK businesses. Employers will see an increase in the National Insurance Contribution (NIC) rate from 13.8% to 15%. Meanwhile, the income threshold at which NIC becomes applicable is set to decrease from £9,100 to £5,000 per year. Compounded by a rise in the national living wage from £11.44 to £12.21 per hour, these adjustments are likely to intensify payroll pressures.
Alan Bark, Head Performance Business Coach and Senior Partner at ActionCOACH Chester, foresees potential cost impacts from the wage hike. Bark, who has led a successful business coaching franchise since 2017, suggests a strategic focus on efficiency and growth as a buffer. He comments, “Running an efficient business with a focus on growth means the increase in wage costs will have little impact. What I may consider over the next 12 months is to test and measure ‘offshoring’ some of the administration and even some of the sales activities, keeping the team small and focused on delivering great service.”
Employment Rights Bill: A Step Forward for Worker Protections
For some business leaders, especially those in sectors reliant on ethical employment practices, the Employment Rights Bill aligns well with their operational goals. A government assessment found that 10 million workers stand to benefit from the proposed reforms, with particular improvements for those in low-paid, insecure positions. The assessment noted a “significant positive impact” on overall workforce wellbeing, with anticipated gains in retention, motivation, and employee satisfaction.
Dan Archer, UK CEO of Visiting Angels, is an advocate for these changes, particularly in care sectors where zero-hour contracts are often standard. Since launching Visiting Angels in the UK in 2017, Archer has prioritised fair pay, career progression, and mental health support to retain committed caregivers. His approach has yielded results: Visiting Angels reports a national turnover rate of 11%, significantly lower than the 73% industry average. Additionally, 30% of new hires come from staff referrals, and mental health-related absences have dropped from 16% to 3.3%. Archer commented, “The flexibility and rights within the proposed bill will give all care providers the impetus to change the way they operate for the better. By offering better pay and benefits, training, career progression and mental health support, we’re showing the sector how to deliver the care the right way.”
Balancing Reforms with Business Viability
The Employment Rights Bill has received support from forward-looking employers who expect it to create a more motivated and committed workforce. However, the increased costs of compliance and higher payroll expenses could challenge small businesses, particularly those already operating on tight margins. The assessment noted that while businesses with progressive employment standards might not feel a significant impact, others may struggle with the demands of adapting to the new framework.
Alan Bark adds that businesses must be intentional in recruitment and training to foster a culture of engagement and alignment with company values. “The proposed changes in the Employment Rights Bill mean little change for us at ActionCOACH. The critical success factor here is the recruitment process – one that will test for an exceptional cultural fit, aligned to strong values and purpose. Help that team to thrive in a high-performance environment with effective leadership and management and you can provide much more than the new bill – for example, we’re working towards a 4-day work week,” Bark said.
Economic and Social Gains Offset Costs for Employers
While the anticipated Employment Rights Bill reforms and budget adjustments bring increased financial obligations, government analyses suggest that these costs will be counterbalanced by economic and social gains, helping to stabilise the UK’s business environment in the long term. The impact assessment indicates that broader economic benefits will outweigh individual business costs, particularly as an engaged workforce fosters improved customer experiences and higher retention.
However, some businesses have expressed concerns that the reforms may lead to reduced hiring, potentially contributing to a decrease in overall employment rates. This trend, if realised, could create challenges for both job seekers and employers, adding to an already strained national workforce.
As the Employment Rights Bill progresses, companies in the UK will need to prepare for its impact, balancing employee rights with the financial and operational adjustments required to remain competitive. For firms prioritising ethics and employee welfare, the changes align well with existing practices. For others, navigating the new terrain may require innovative strategies and a recalibrated approach to talent management.
