Small business owners concerned about unfair dismissal proposals

A new survey shows that more than nine in ten small employers are concerned about the proposed workers’ rights bill.

The Federation of Small Businesses surveyed more than 1,200 small business employers, highlighting real concerns about the government’s plans to strengthen employee rights.

The FSB is calling the prime minister withdraw plans to expand the causes of action for unfair dismissal, allowing employees to submit their request from the first day of work.

Small businesses are very concerned about unfair dismissal plans

The survey highlights widespread unease among small business owners regarding the Labor Rights Billwhich was presented to Parliament on October 10, 2024

The amendments would give employees the right to go to court for unfair dismissal immediately after starting work, a change from the current system, which contains a qualifying period.

According to the FSB, the government risks undermining job creation and retention unless this provision is removed. The organization is calling for a return to the one-year qualifying period under the previous Labor government.

The survey found that the proposed changes could disproportionately affect job seekers with limited work experience or inconsistent work histories. The companies surveyed indicated that they probably:

• Adjust hiring practices (87%)
• Avoid employing candidates with poor work history (66%)
• Refrain from hiring people without previous work experience (33%)

Proposals could lead to an additional 4,750 cases in employment tribunals

The Government’s own figures suggest that unfair dismissal proposals could lead to a 15% increase in legal actions.

This incorporates a further 20,000 complaints, a further 4,750 employment tribunal cases and a further 875 cases which may lead to a full hearing.

Outlook bleak as small businesses come under pressure from all sides

Coupled with the imminent increase in National Employers Insurance and the National Living Wage, it is no surprise that two thirds of small businesses expect to reduce hiring this year, and almost a third are considering cuts to existing staff.

The FSB survey results arrive the same week as the latest KPMG employment report shows private sector wage growth slowing to a post-COVID low.

Data of the S&P UK Global Services PMI It also records the largest drop in jobs in the service sector since January 2021.

Businesses already under pressure from looming employment tax increases

Small businesses, already struggling with high inflation, higher costs and a stagnant economy, will also have to absorb the April 2025 rise in employers’ national insurance and an increase in the national minimum wage.

Although the employment benefit will increase to cushion the effect of the increase on smaller employers, both the employers’ NI rate and the initial threshold will increase, as follows:

• Starting in April 2025, the NI for Class 1 employers will increase from 13.8% to 15%. There are no changes to employee NI (employee-paid) or Class 4 NI (self-paid).
• From April 2025, the secondary threshold at which employers start paying employer NI will be reduced from £9,100 to £5,000.
• He Employment subsidy will increase from £5,000 to £10,500 to help smaller businesses cope with the NI increase.
• From April 2025, the National Minimum Wage (NMW) will rise to £12.21 per hour for employees over 21 years of age: an increase of 6.7%.

The economy is not in a position to face a “war on work”

Commenting on the results of their survey, Tina McKenzie, policy chair at the FSB, said:

Small businesses have made it abundantly clear that the bill will not motivate them to hire more. His response is emphatic, resounding and overwhelming. The economy is not in suitable conditions for a “war on jobs.”

Commenting on the dramatic slowdown in hiring in the services sector, Tim Moore, chief economic officer at S&P Global Market Intelligence, said:

Respondents suggested that falling business and consumer confidence, largely due to concerns about the domestic economic outlook in 2025, had led to a considerable loss of growth momentum.

Nearly one in four respondents saw an overall decline in their payroll numbers. Excluding the pandemic, this represented the steepest pace of job destruction in more than 15 years.