Written by Robert Downes, Regional Business and Stakeholder Engagement Manager at the Federation of Small Businesses’ (November 2025).

The UK’s legislative landscape for employment is rarely static, and the proposed Employment Rights Bill (ERB) marks another significant shift. Intended to enhance worker protections and modernise the workplace, the ERB presents a complex challenge for businesses, particularly for the smaller businesses such as micros, which form the backbone of the UK economy.  

For businesses with staff, whether one or many, understanding these potential impacts and advocating for a balanced, pragmatic outcome is crucial.

While the spirit of improving working conditions is widely supported, many of the ERB’s provisions have sparked considerable fear within the small business community. The core of this concern revolves around three critical pillars: increased costs, amplified administrative burdens, and a perceived erosion of flexibility in hiring – and firing – staff.

The Financial Headwinds

One of the most immediate anxieties for SMEs is the potential for rising operational costs. Consider the proposed changes to Statutory Sick Pay (SSP), extending coverage from day one of sickness and potentially removing the lower earnings limit. For larger corporations, absorbing these costs might be manageable, but for a small firm, even a single instance of extended sick leave can significantly impact budgets, especially when coupled with existing pressures such as rising National Living Wage (or in some cases the Real Living Wage) commitments. These cumulative financial obligations can quickly transform from minor adjustments into substantial overheads, directly affecting profitability and investment capacity.

Beyond direct costs, the shadow of increased legal risk and employment tribunals looms large. A more complex regulatory environment can inadvertently lead to a rise in tribunal claims. For the smallest businesses, particularly micro-sized (1-9 staff), who typically lack in-house legal teams or extensive HR departments, the cost and distraction of defending even a single claim can be disproportionately high, diverting precious time and resources away from core business activities. In fact, tribunals can bury businesses such is the time, resource and cost to defend such situations. The FSB’s legal hub, which includes 24/7 access to legal qualified HR staff, have already seen an uptick on calls about ERB. The volume of calls is only likely to increase as we move closer to ERB going live next year.

The Weight of Administration

The sheer volume and pace of legislative change are also a concern. Implementing numerous new regulations within a short timeframe demands considerable administrative effort – and for businesses getting employment law wrong can be a costly mistake. Measures like the proposed ban on fire and rehire tactics or adjustments to zero-hour contract stipulations necessitate thorough reviews and updates to employment contracts, company handbooks, and internal HR procedures.

For a small business owner, who often wears multiple hats, from CEO to HR manager to chief cook and bottle washer – this isn’t just a matter of checking boxes. It’s a significant diversion of day-to-day operations. This administrative overload can become a genuine barrier to compliance, not due to unwillingness, but due to a lack of capacity and expertise. Bosses at many businesses are genuinely frightened about how they will handle the changes – many of which are not yet know such is the complexity of the ERB, including the time frame for adoption. What is certain though, is that whatever the outcomes are, they won’t bode well for an already diminishing jobs market.

Navigating Hiring and Managing Staff

Perhaps the most significant area of debate centres on the potential impact on hiring and dismissal practices. Proposals to introduce day one unfair dismissal rights have sent ripples of apprehension through businesses. While ensuring fair treatment for employees is paramount, businesses worry about being exposed to claims from an employee’s first day. This creates a challenging environment where small employers fear getting stuck with hires that prove to be a poor fit, as the process for managing or dismissing new staff could become significantly more complex and risky.

This concern isn’t about fostering a culture of arbitrary dismissal but about maintaining the agility to correct recruitment mistakes quickly, a flexibility vital for smaller, resource-constrained teams. The potential consequence is that some businesses may become more risk-averse, potentially leading to:

• Reduced permanent hiring: A greater reliance on temporary contracts or self-employed individuals to mitigate perceived risk.
• Cautious recruitment: A potential reluctance to hire individuals who might require more support or present a perceived higher risk, such as those entering the workforce for the first time or those returning after a long break.

Similarly, changes impacting zero-hour contracts, such as the right to guaranteed hours after a qualifying period or compensation for cancelled shifts, challenge the operational flexibility many small businesses rely on, particularly in sectors like hospitality or retail where demand can fluctuate unpredictably – and where profit margins are already wafer thin. Contrary to the narrative from some, zero hours contracts can and do work for both business and staff. Ask any student.

Finding Common Ground

It’s clear the ERB is a double-edged sword. On one side it offers the promise of enhanced worker rights and a more equitable workplace. On the other, it presents substantial challenges to the agility and economic viability of small businesses. The goal, for a truly effective and sustainable piece of legislation must be to find a happy compromise.

This means advocating for a Bill that truly works for both employees and employers. For employees, security and fair treatment are non-negotiable. For employers the need for flexibility, manageable costs, and clear, practical guidance is equally vital.

At FSB, our role as lobbyists is to engage constructively with government around these proposals. We must champion an Employment Rights Bill that protects and empowers workers without inadvertently stifling the growth, innovation, and job creation capabilities of our small business community. This isn’t about resisting progress; it's about shaping progress into a form that truly benefits all stakeholders in the UK economy.

Take a look at the FSB website HERE to see how we can help you manage any changes due to ERB sensibly, without breaking the bank.