The UK government has made significant changes to the Employment Rights Bill (ERB), following extensive consultations with business groups and trade unions. The resulting amendments cover a wide range of employment issues, including agency worker rights, redundancy consultation penalties, fair work enforcement and statutory sick pay reforms.
For UK employers, these changes signal greater regulatory oversight, tougher enforcement measures and new financial liabilities for non-compliance. Notably, the newly established Fair Work Agency (FWA) will have expanded enforcement powers, including the ability to initiate tribunal proceedings on behalf of employees. Meanwhile, businesses engaging agency workers will now bear clearer responsibilities for shift notifications, guaranteed hours and compensation for short-notice cancellations.
This article breaks down the key ERB amendments announced this month and what they mean for employers.
Developments in March 2025
The Government has released a revised Amendment Paper, which – at 222 pages – consolidates all proposed changes to the Employment Rights Bill. This document reflects the amendments that have emerged following the Government’s official response to multiple statutory consultations. These consultations gathered input from business groups, trade unions, and other stakeholders to refine the Bill’s provisions. The updated Amendment Paper outlines key legislative adjustments, including enhanced worker protections, changes to statutory sick pay, new regulations on zero-hours contracts, and increased enforcement mechanisms. This latest version provides a comprehensive overview of how the Bill has evolved in response to industry feedback and policy considerations.
Latest amendments to the Employment Rights Bill
Following the consultations, the government published a series of amendments to the Employment Rights Bill, notably including:
Fair Work Agency (FWA)
The Bill establishes a new state enforcement body, the Fair Work Agency (FWA), which consolidates existing enforcement responsibilities. These include oversight of minimum wage compliance, statutory sick pay enforcement, labour exploitation, and modern slavery. The FWA will now be responsible for enforcing holiday pay entitlements. The amendments significantly expand the agency’s authority.
Employers will now be legally required to keep records demonstrating compliance with holiday entitlement, including details of leave taken and payments made. While there is no mandated format, records must be retained for six years, and failure to do so will constitute a criminal offence carrying potentially unlimited fines.
The FWA will have the power to take action against employers who fail to pay workers statutory entitlements, such as holiday pay and statutory sick pay. Employers found in breach may receive an underpayment notice requiring them to settle the owed amount within 28 days, along with a penalty of 200% of the unpaid sum, which will be payable to the Secretary of State. This system mirrors the current approach to enforcing minimum wage compliance and may have major financial consequences for businesses that miscalculate holiday pay for multiple employees. However, the extent of enforcement will depend on the FWA’s available resources.
If a worker has a valid claim but appears unwilling or unable to pursue it, the FWA will have the authority to initiate proceedings on their behalf. The agency will also be empowered to provide legal assistance in employment disputes.
The Secretary of State will be entitled to recover the costs associated with enforcement actions from businesses that fail to adhere to employment regulations. The specific methodology for calculating these costs will be set out in forthcoming regulations.
Regulation of Umbrella Companies
The government is introducing new regulations to oversee umbrella companies, which operate as intermediaries in the supply chain of temporary labour. This follows concerns raised during a government consultation that these entities can deprive workers of employment rights, distort fair competition, and contribute to tax losses.
To address these issues, the Bill has been amended to define umbrella companies explicitly and bring them under the employment business category.
Umbrella companies will now fall under the regulatory oversight of the Employment Agency Standards Inspectorate (EASI), which will later be absorbed into the Fair Work Agency once it is fully operational. This is intended to enhance compliance and reduce worker exploitation.
Workers engaged through umbrella companies will gain the same legal protections as those employed by traditional employment businesses. This includes safeguards against financial detriment, such as non-payment of holiday pay and lack of transparency in pay structures.
There are also upcoming tax compliance changes that will affect how umbrella company employees’ taxes are handled. From April 2026, under separate legislation:
- Responsibility for PAYE and National Insurance Contributions (NICs) will shift from the umbrella company to the recruitment agency supplying the worker.
- If no agency is involved, this liability will instead fall on the end-client.
These changes are expected to have significant industry-wide implications. Businesses may begin to phase out umbrella company arrangements in favor of in-house payroll management or dedicated payroll agencies. Umbrella companies themselves will need to adjust their business models to remain compliant and should expect to face increased scrutiny and due diligence requirements.
Bereavement Leave for Miscarriage
The bill introduces bereavement leave for parents after a miscarriage, acknowledging the emotional impact and providing necessary support during such times.
Ban on ‘Fire-and-Rehire’ Practices
The bill prohibits the practice of dismissing employees only to rehire them on less favourable terms. The maximum protective award for breaches of collective redundancy consultation requirements will be doubled from 90 days to 180 days, with the aim of strengthening employer compliance.
However, a proposed measure to allow interim relief in cases involving protective awards or unfair dismissal claims linked to fire-and-rehire practices will not be pursued. The government has decided against this provision, citing concerns that it would impose excessive burdens on both businesses and the tribunal system.
Recognising employer concerns about navigating collective consultation obligations, the government has committed to publishing additional guidance to support businesses in meeting their legal requirements. This guidance, which will focus on best practices for consultation in redundancy situations, is expected to be issued in the near future.
Union Agreements and Zero-Hours Contracts
Employers can avoid new obligations for guaranteed working hours and pay if a deal with a trade union is in place – potentially incentivising employers, particularly in low-wage sectors, to engage in collective bargaining with unions.
Extension of Guaranteed Hours to Agency Workers
The revised bill mandates that all workers, including approximately one million agency workers, receive contracts reflecting the hours they regularly work.
Both employment agencies and end hirers will share the responsibility of ensuring that agency workers receive reasonable notice of shifts. If a dispute arises, an Employment Tribunal will have the authority to divide liability between the two parties based on their level of responsibility in each specific case.
When it comes to short-notice cancellations or curtailments, the obligation to make compensation payments will rest with the employment agency. However, agencies will have the option to recover these costs from the hirer, provided they have an agreement in place that allows for this.
The Secretary of State will be granted the power to introduce regulations specifying how agency workers should be notified about their shifts, as well as any cancellations or reductions in working hours.
The duty to offer guaranteed hours contracts to qualifying agency workers will fall solely on the end hirer. However, an exemption will apply in cases where there is a genuine temporary work requirement, such as seasonal demand, allowing businesses to continue offering flexible work arrangements where appropriate.
The existing rules on extended hire periods and transfer fees, as set out in The Conduct of Employment Agencies and Employment Businesses Regulations 2003, will also remain in place without changes.
Statutory Sick Pay (SSP)
The amendments establish SSP as a legal entitlement for all workers, regardless of their earnings. Currently, employees earning below the Lower Earnings Limit (£123 per week) were ineligible for SSP. Under the new regime, employees earning below the standard SSP rate (£118.75 per week from April 2025) will be eligible for a percentage-based SSP rate; these workers will receive 80% of their average weekly earnings or the standard SSP rate, whichever is lower.
The Bill also removes the existing three-day waiting period for SSP eligibility, making SSP payable from the first day of sickness absence.
Strengthened Protections Against Redundancy Abuse
The bill introduces stricter remedies to prevent employers from exploiting redundancy rules, ensuring fair treatment during workforce reductions.
Modern Industrial Relations Framework
The legislation proposes a contemporary framework for industrial relations, facilitating more efficient and equitable interactions between employers, employees, and unions.
Next Steps
The Employment Rights Bill is scheduled for its report stage and third reading in the House of Commons on 11 and 12 March 2025. During this stage, further amendments can be made before the bill progresses to the House of Lords for additional scrutiny.
The Confederation of British Industry (CBI) has criticised the reforms as “highly damaging” to investment and job creation, expressing concerns about increased costs and regulatory burdens on businesses. The CBI estimates that the bill, alongside other cost increases such as national insurance and business rates, will add substantial burdens to companies, potentially deterring both domestic and foreign investment.
To discuss preparing your organisation for the impending reforms, speak to our UK employment and HR specialists.
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals
