The cost to UK businesses of Labour’s overhaul of workers’ rights has fallen sharply after ministers made significant changes to the legislation, according to the government’s updated analysis.
A revised Whitehall impact assessment published on Wednesday estimates that the Employment Rights Bill will now cost employers around £1 billion, down from earlier projections of up to £5 billion. Officials said the lower figure reflects a series of late-stage adjustments, including phasing in reforms over several years and changes made to the bill’s design since the original assessment in October 2024.
The Employment Rights Bill, passed last month after prolonged negotiations in the House of Lords, introduces reforms such as tighter rules on zero-hours contracts, enhanced statutory sick pay, and extended parental leave. One of Labour’s most high-profile manifesto promises, granting workers the right to claim unfair dismissal from their first day of employment, was removed during the final stages. Ministers instead introduced a six-month qualifying period, a compromise that resolved parliamentary gridlock but drew criticism from some Labour MPs and trade unions. Sharon Graham, general secretary of Unite, described the final legislation as “a shell of its former self.”
The concessions followed talks involving major business groups and unions, but some employers remain unconvinced by the revised cost estimates. Kate Shoesmith, director of policy at the British Chambers of Commerce, called the £1 billion figure “likely to be a massive underestimate.” She warned that the calculation does not fully capture indirect costs, such as management time needed to understand the new rules, staff training, and updating internal processes. Shoesmith added that while the six-month unfair dismissal threshold reduces financial exposure for employers, the reduction is unlikely to be as substantial as suggested.
The government acknowledged that businesses will face additional costs, particularly from changes to statutory sick pay, paternity leave, and increased administrative requirements. It argued that these costs are small compared with the overall economy. The impact assessment noted that total employment costs in the UK were £1.4 trillion in 2024, meaning the reforms’ estimated increase amounts to just 0.1% of the total pay bill.
The revised analysis also raised the number of workers expected to benefit from the legislation to 18 million, up from 15 million, with the largest gains in lower-paid sectors including social care, hospitality, and retail. Paul Nowak, general secretary of the Trades Union Congress, said the reforms would bring the UK closer to international standards, providing higher living standards and more secure incomes for working people.
According to the government, the reforms could raise employment by around 0.1%, improve job quality and productivity, and deliver a modest boost to economic growth. Officials highlighted that the benefits are particularly significant for younger workers and women.
