New government bill proposes major changes to employment law

The proposed 'Smart Regulation' bill is intended to cut red tape for businesses, but unions say it could put worker protections at risk.

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The Department for Business and Trade has announced it will scrap the EU’s Working Time Regulations 1998 (WTR), in a move which has major repercussions for small business employment law in 2023.

Under the new plans, the government will remove the requirements for recording working time and reduce the complexity of calculating holiday entitlement.

The government claims the reforms will take advantage of post-Brexit freedoms and remove red tape for business owners. Critics argue that the changes will make it easier for bad bosses to take advantage of their workforce.

Below, we outline what the new policy is, and how it might impact your people management strategy.

SMEs no longer required to report on working time hours

In a policy paper, entitled Smarter Regulation to Grow the UK Economy, the Department for Business and Trade outlined major reforms to WTR. Notably, the removal of a retained EU law that requires working hour records to be kept for almost all members of the workforce.

Under the proposals, the EU’s Working Time Directive will remain. The law limits UK employees to 48-hour working weeks  – as well as how many hours workers can operate at night.

The existing law does not currently apply to certain employment groups, such as those who are self employed. However, employers who do currently follow working time rules will no longer be required to keep records to ensure that the time limit is being followed.

Certainly, the reduction in administrative requirements is welcome news for small business owners. If employees are currently tasked with logging their working hours, removing this activity will free up more time to carry out other activities that add value.

There is also a financial incentive. Currently if working hour records aren’t kept then the risk to employers is an unlimited fine.

Nonetheless, the reforms will also make it easier for negligent bosses to overwork their employees. Paul Nowak, general secretary of the Trades Union Council (TUC) criticised the government’s stated aims, calling them “a gift to rogue employers looking to exploit workers and put them through long, gruelling shifts without enough rest”.

Last year, we cautioned against a bonfire of regulations that the government had planned, which would have seen thousands of employee protections instigated by the European Union revoked at the end of 2023.

Whitehall has since backtracked on this declaration, but the ‘Smarter Regulation’ bill shows that some laws are still at risk.

Holiday pay changes could mean increased productivity, but worsened health and wellbeing

The bill also recommends the introduction of rolled-up holiday pay for UK workers. If holiday pay is rolled-up, employees are routinely paid an additional sum of money with their basic wage.

The resulting payslip is labelled as “holiday pay”, even though the employee is not actually taking any time off. When the staff member actually comes to take a holiday, they are paid nothing, as they have already had the money.

Workers taking their holiday as pay, without taking the days off, potentially means increased productivity for the business. Particularly in the current economic climate, employees on lower salaries often do not want to take their leave if the cost of being off work is higher.

However, certain firms will find the proposed changes thornier than others. Practically speaking, employment contracts will need updating. Small firms with operations in the UK and EU will have to think about different approaches to how holiday pay is calculated.

Rolling-up holiday pay was also previously ruled illegal in 2006 (except for in specific cases such as zero-hours contracts). The practice was deemed to dissuade employees from taking adequate rest time unless they have budgeted carefully and saved their holiday pay.

This can be disastrous for mental health and wellbeing, and is more likely to lead to stress and burnout.

To encourage individuals to take sufficient time off, best practice is for employers to pay staff when holiday is taken, rather than spreading the costs out over the year.

New bill is good news for temporary workers

One advantage of the proposal is that it will make the confusing holiday pay claims process simpler for temp employees.

In temporary employment, workers are contracted only for a specific period of time. For example, fixed-term, project- or task-based contracts, as well as seasonal or casual work like day labour.

It has been estimated that millions of pounds of holiday pay has been left unclaimed because temps didn’t realise they were entitled to it when their contract came to an end.

Julia Kermode is founder of IWORK, the body that champions temporary and independent workers. Praising the announcement, Kermode said: “At a time when every penny counts, the move to roll up holiday pay will help hundreds of thousands of temps make ends meet.”

Demand for temporary staff has been steadily increasing for UK businesses, as lingering uncertainty around the economic outlook sees companies avoid committing to long-term contracts.

According to a survey from KPMG and the Recruitment and Employment Confederation (REC), temporary job roles in the UK have surged from 52.5 points to 53.3.

In the current financial climate, recruiting temp staff brings benefits aplenty for businesses. Temporary employees can be recruited quickly and easily to cover absences such as long term sickness, maternity or paternity leave, and sudden departure. Post-Great Resignation, as firms grapple with high staff turnover, this is particularly beneficial.

Small business owners should consider full impact of change

Anything that might affect employees’ wages, working patterns, and wellbeing requires careful consideration from business owners. For the moment, the more complex elements of the policy – who it will impact, how strictly it will be enforced – are unclear.

The government claims the changes will help to save small businesses an estimated £1 billion per year by shortening admin processes. That will not be the case for every business, however.

Those with operations or employees in both the EU and the UK will surely find the system more confused than ever. Stickier areas of people management, such as unpaid leave or those with a flexible bank holiday policy, will also be difficult for employers to plan for if holiday pay is rolled-up.

We recommend managers take the time to properly review the policy and how it might impact every individual in the business.

There are benefits for SMEs to enjoy from the Smarter Regulation bill. But they must be balanced out by a nuanced, transparent approach that keeps the employee, not the employer, at the centre.

Written by:
Helena Young
Helena is Lead Writer at Startups. As resident people and premises expert, she's an authority on topics such as business energy, office and coworking spaces, and project management software. With a background in PR and marketing, Helena also manages the Startups 100 Index and is passionate about giving early-stage startups a platform to boost their brands. From interviewing Wetherspoon's boss Tim Martin to spotting data-led working from home trends, her insight has been featured by major trade publications including the ICAEW, and news outlets like the BBC, ITV News, Daily Express, and HuffPost UK.

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