Could the Employment Rights Bill see contractors replace full-time employees?

With the Employment Rights Bill expected to come into effect in the next two years, more businesses could adapt to new regulations by hiring more contractors over full-time employees.

Introduced in October 2024, the bill is designed to strengthen worker protection rights and address long-standing concerns about job security, fair pay and employment conditions, such as maternity leave and flexible working.

However, for employers, it introduces stricter regulations and increased costs associated with employee protections, such as potentially needing to adjust budgets to accommodate higher wage expectations, expand sick pay and improve company benefits.

With new employment regulations on the horizon and economic pressures mounting, companies are re-evaluating their hiring strategies, leading to a decline in permanent job vacancies and a rise in contractor roles. While this could mean greater flexibility for employers, they also raise concerns about workers’ rights, even with Labour’s protection.

Permanent job vacancies continue to decline

According to statistics by the Office for National Statistics (ONS), the number of job vacancies in the UK decreased by 24,000 between October and December 2024. 

Meanwhile, an employer survey reported by The Guardian revealed that vacancies for permanent roles had declined at the fastest rate since August 2020. The number of workplace redundancies is also expected to hit over 200,000, according to the latest statistics.

Some employers, most notably retail and hospitality businesses, pointed towards the rise in National Insurance Contributions (NICs) as the reason for this decline. Others also said that economic uncertainty and the cost of employment were key reasons for the slump in hiring.

Jon Holt, Group Chief Executive and UK Senior Partner at consultant firm KPMG commented: “Businesses continue to hold back on recruitment, leading to permanent and temporary placements falling steeply again in January,”

“It is unlikely that we will see any significant improvements in the survey data over the near term, as hiring stays muted and staff availability continues to rise.”

Contractor jobs are on the rise

But while permanent job vacancies continue to drop, there’s been a notable increase in contractor hires in the last few months.

The latest data from the Association of Professional Staffing Companies (APSCo) reported a 17% increase in contract roles between November 2024 and January 2025. 

“We are likely to see the impact of the Government’s Employment Rights Bill and NICs increases continue to play throughout this year,” Moya Rylands, Commercial Director at APSCo said. “It may take some time before this becomes sustained growth, but for now it is a promising emblem for the employment landscape.”

However, Rylands added that this rise suggests that there’s still a significant skills gap in the UK’s job market and that most of this demand is “driven by employers responding to resourcing gaps, rather than expanding their headcount ahead of the April rollout of the rise in NICs.”

The UK public isn’t in favour of zero-hour contracts

On the other hand, a poll conducted by the Trades Union Congress (TUC) found that 72% of respondents voted to ban zero-hour contracts. It was also reported that 84% of zero-hour contract workers want regular working hours, claiming they are struggling financially due to being underemployed.

Unlike permanent employees, contractors often don’t receive the same benefits, such as sick pay, holiday entitlement or protections against unfair dismissal. This means that the rise in contractor roles could raise questions about whether this shift toward temporary work is truly a long-term solution or a short-term response to economic and regulatory uncertainty.

Additionally, with the Employment Rights Bill set to introduce greater protections for permanent staff, this could raise concerns over businesses increasingly relying on contractors to bypass stricter regulations. 

Even with Labour’s promise to eradicate “exploitative” zero-hour contracts, there are still concerns that loopholes may still allow businesses to sidestep protections by shifting more workers into insecure, temporary roles – leaving many without stable income or workplace rights.