Warning over ‘burdensome’ employment laws stifling SME growth

Thousands of small businesses risk closure if the government proceeds with plans to end probationary periods for employees without specific exemptions, a leading employment platform has warned. 

The anticipated new employment laws announced by the government will see probationary periods scrapped as employees gain day one rights.

Flexible contracts will also be banned, alongside the introduction of a new ‘right to switch off’ for workers, as well as an extension of the national living wage for all adult employees. 

These plans confirm the previous worrying signs that the government’s package of employment law reform was starting to have a chilling effect on hiring intention.

Employment Hero’s HR chief Kevin Fitzgerald predicts that these changes will disproportionately harm small businesses, especially firms with fewer than 10 employees who are already struggling amid record-high insolvency rates. 

He urged the government to exempt such businesses from the removal of probation periods, describing this regulation as ‘the most burdensome’ of the plans for employment law and likely to stifle growth in the sector. 

Citing the financial struggles for SMEs, Fitzgerald noted that 58 per cent of small firms sought loans last year just to cover operational costs, a sharp increase from pre-pandemic levels.

He stressed that small businesses simply cannot afford further regulatory pressures, particularly in light of declining confidence and revenues.

While acknowledging the government’s intention to reform employment laws, he further suggested that exempting firms with fewer than ten employees would still cover 74 per cent of the UK workforce, allowing the government to achieve its goals without overwhelming small businesses. 

The warning comes as insolvency rates remain high following a record peak in 2023, with SME confidence plummeting due to Labour’s tax plans. 

Employment Hero pledged to support SMEs through its AI-driven platform, designed to streamline employment processes and reduce reliance on legal services. 

It was announced earlier this month that businesses could face large fines from a newly formed agency – Fair Work Agency (FWA) – if they are found to have breached Labour’s proposed workers’ rights laws.

Emma Jones, founder and chief executive of small business support platform Enterprise Nation, said to not exempt small businesses from these “punitive fines” would be a blow to hiring practices and overall economic growth. 

Jones added: “We think if new workers’ rights regulations are introduced, small businesses must be exempt from proposed fines for failure to comply with these new regulations – including full rights from day one – and given ample time, support and flexibility to help them comply.

“Imposing punitive fines on these firms, just as many of them are getting back on their feet and starting to employ people, perhaps for the first time, would reverse, not encourage, economic growth.”