Employment Rights Bill: Key Impacts for Contractors

Unpacking the Employment Rights Bill: Implications for Contractors and Flexible Workers

On 10 October 2024, the Labour Government introduced a comprehensive Employment Rights Bill to Parliament. At 158 pages, this legislation aims to overhaul worker protections—especially for vulnerable employees and those on zero-hours contracts. But what does it mean for contractors and the flexible workforce?

What the Bill Promises to Achieve

Labour has outlined the following core objectives:

• A ban on exploitative zero-hours contracts
• Ending the controversial ‘fire and rehire’ practices
• Introducing basic employment rights (like sick pay and protection against unfair dismissal) from day one of employment

These reforms primarily target workers traditionally lacking bargaining power, focusing on improving job security and predictability.

Accessing Official Documents

The full text of the Employment Rights Bill is publicly available, alongside key explanatory materials:
• [Full Employment Rights Bill](https://bills.parliament.uk/bills/3737)
• [Explanatory Notes for MPs](https://publications.parliament.uk/pa/bills/cbill/59-01/0011/en/240011en.pdf)
• [European Convention on Human Rights Memorandum](https://assets.publishing.service.gov.uk/media/6707a58a366f494ab2e7b650/employment-rights-bill.pdf)
• [What does the Bill mean for you?](https://www.gov.uk/government/news/what-does-the-employment-rights-bill-mean-for-you)
• [Next Steps to Make Work Pay](https://assets.publishing.service.gov.uk/media/6707a5eb92bb81fcdbe7b62b/next_steps_to_make_work_pay.pdf)

Given Labour’s Parliamentary majority, significant amendments are unlikely. Businesses and workers should prepare for the measures as currently drafted.

What’s NOT Included: Single Worker Status and IR35

Despite early discussions, the Bill does not introduce a Single Worker Status—the proposed radical simplification of employment status into a single category. Currently, employment law distinguishes self-employed, worker, and employee; tax law has only self-employed and employed.

Labour intends to consult on this complex topic in 2025, with any substantial changes signalled for after 2026. Importantly, the Bill does not alter IR35 or off-payroll tax legislation. Contractors operating via limited companies and engaged outside IR35 see no changes.

Who Does the Bill Affect? A Quick Breakdown

There are several typical work arrangements in the UK:

1. Permanent employees 2. Agency workers 3. Umbrella employees 4. Limited company contractors (inside or outside IR35)

Limited company contractors (category 4) are unaffected by the Bill.

Key new rights apply to:

• Permanent employees
• Umbrella employees

Notable measures:

• Unfair dismissal protection from day one
• Statutory sick pay and family leave from day one
• Ban on zero-hours contracts
• Right to reasonable notice for shifts and to be paid if shifts are cancelled at short notice
• Stronger protections for pregnant workers and new mothers
• Right to request flexible working where practical

Agency workers may see more gradual or limited implementation of new protections, and the government has signalled further consultation on this.

Focus: Zero-Hours Contracts and Guaranteed Hours

The Bill’s first three clauses are critical for flexible workers:

1. Guaranteed Hours: After 12 weeks, employees must be offered contracts reflecting their actual working hours. Failure means possible compensation via employment tribunal. 2. Reasonable Notice of Shifts: Employers must give reasonable notice for required work and any changes or cancellations. 3. Payment for Cancelled Shifts: Last-minute shift changes require employers to pay affected workers as if the shift had taken place.

These measures aim to prevent uncertainty and sudden loss of income—issues common in the recruitment and temping sectors.

Will Contractors Be Affected?

Limited company contractors, especially those operating outside IR35, are not within the scope of the Bill. Clients and agencies engaging such contractors can continue as before.

However, umbrella employees are likely to be impacted:

• Umbrella companies act as employers for contractors, making them subject to the new guaranteed hours and shift cancellation rules.
• Recruitment agencies that use umbrella providers will need robust processes to comply with these obligations, including tracking hours and managing shift notifications.

The recent court case (Exchequer Solutions Limited v HMRC) further underlines that umbrella workers are considered employees with a sufficient degree of mutual obligation for full employment rights. Non-compliance could lead to tribunal claims and financial penalties.

For all involved, now is the time to review contracts, shift scheduling and notification practices, especially within umbrella company arrangements.

What Comes Next? Timeline and Likely Reforms

Some areas—like a potential Single Worker Status, TUPE reforms, or enhancements for agency workers—will be subject to public consultation. Expected timetable:
• 2025: Consultations begin
• 2026 onwards: Most reforms take effect

Labour’s direction is clear: more rights and protections for non-traditional employment models, and a strong move away from uncertainty rooted in zero-hours work.

Practical Steps for Contractors, Agencies, and Businesses

• Limited company contractors: No immediate changes. Stay vigilant for future consultation outcomes.
• Umbrella employees and agencies: Review contracts, implement processes for shift management, and prepare for new compliance requirements.
• Clients: Continue best practices when engaging outside IR35 contractors.

Monitor government updates and be ready to adjust once consultations conclude and further regulations are finalised.

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Be proactive in understanding how employment status, umbrella company relationships, and future legislative changes could affect your contracting journey. Stay informed: follow legislative updates and seek expert advice if required.