Small employers concerned about unfair dismissal proposals

A new survey shows that over nine in ten small employers have concerns over the proposed Employment Rights Bill.

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

The FSB is calling on the Prime Minister to withdraw plans to broaden the grounds for unfair dismissal claims, allowing employees to file from their first day on the job.

Small businesses are very concerned by unfair dismissal plans

The survey highlights widespread unease among small business owners regarding the Employment Rights Bill, which was introduced to Parliament on 10th October 2024

The amendments would give employees the right to pursue tribunals for unfair dismissal immediately upon starting employment, a shift 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 scrapped. The organisation calls for a return to the one-year qualifying period under the previous Labour government.

The survey found that the proposed changes could disproportionately affect job seekers with limited work experience or inconsistent employment records. Surveyed businesses indicated they would likely:

• Adjust hiring practices (87%)
• Avoid employing candidates with poor work histories (66%)
• Refrain from hiring individuals without prior work experience (33%)

Proposals could lead to an extra 4,750 employment tribunal cases

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

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

Gloomy outlook as small firms under pressure from all sides

Coupled with the looming rise in Employers’ National Insurance and the National Minimum Wage, it is unsurprising that two-thirds of small firms expect to reduce hiring this year—with almost one-third considering cuts to existing staff numbers.

The FSB poll findings come in the same week as the latest KPMG report on jobs shows private sector salary growth shrinking to a post-COVID low.

Data from the S&P Global UK Services PMI also records the steepest decline in service sector jobs since January 2021.

Firms already under pressure from looming employment tax rises

Already battling high inflation, increased costs, and a stagnant economy, small businesses will also have to absorb the April 2025 hike in Employers’ National insurance and an increase in the National Minimum Wage.

Although the Employment Allowance will rise to dampen the effect of the rise on smaller employers, both the rate of Employers’ NI plus the starting threshold are due to rise, as follows:

• From April 2025, Class 1 Employers’ NI will increase from 13.8% to 15%. There are no changes to employees’ NI (paid by employees) or Class 4 NI (paid by the self-employed).
• From April 2025, the secondary threshold at which employers start paying Employers’ NI will be cut from £9,100 to £5,000.
• The Employment Allowance will increase from £5,000 to £10,500 to help smaller businesses deal with the NI rise.
• From April 2025, The National Minimum Wage (NMW) will rise to £12.21 per hour for employees aged over 21 – a 6.7% increase.

The economy is in no fit state for a ‘war on work’

Commenting on its survey results, Tina McKenzie, FSB’s Policy Chair, said:

Small firms have made it crystal clear that the Bill will not motivate them to hire more. Their feedback is emphatic, resounding, and overwhelming. The economy is in no fit state for a ‘war on work’.

Commenting on the dramatic slowdown in service sector hiring, Tim Moore, Economics Director at S&P Global Market Intelligence, said:

Survey respondents suggested that falling business and consumer confidence, largely due to worries about domestic economic prospects in 2025, had led to a considerable loss of growth momentum.

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