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September 18, 2024
As the October budget looms, businesses must prepare for several potential economic shifts that could significantly impact recruitment, workforce planning, and general business operations.
At CMD Recruitment, we are closely tracking the upcoming budget and proposed legislative reforms to ensure we are well-prepared to support businesses through these changes. While these developments may introduce challenges, they also offer opportunities for those who are ready to adapt.
One of the most pressing concerns for businesses in the upcoming budget is likely to be increased taxation. The government may introduce higher National Insurance contributions and Corporation Tax to raise revenue, adding pressure to businesses’ payroll and operational costs.
For example, a 2% increase in National Insurance contributions could add an average of £1,000 per year to the cost of employing a full-time worker.
Furthermore, proposed changes to the National Minimum Wage—likely rising to keep pace with inflation—could increase wage bills, particularly in sectors like retail and hospitality, where a large portion of employees earn minimum wage. If the government eliminates the 18-20-year-old band, employers will face even higher costs for younger employees. For instance, a 5% increase in the National Minimum Wage could raise labour costs for a small business with 10 employees by around £5,000 per year.
These additional costs may force businesses to become more selective with their hiring, focusing on candidates who provide significant ROI and avoiding roles that do not offer enough value to justify higher costs.
In addition to tax increases, the UK government is considering several employment law reforms, which could impact hiring, dismissal, and overall workforce management.
One of the most significant changes under discussion is extending unfair dismissal protections to the first day of employment. Under current law, employees must complete two years of service before they can bring an unfair dismissal claim. If this protection is granted from day one, businesses will need to rethink how they manage probation periods. The traditional approach of “trying out” a new hire may become much riskier, potentially leading to more cautious hiring practices and stricter performance management protocols.
Proposed changes to Statutory Sick Pay (SSP) could see SSP provided from day one of employment, coupled with a rise in the SSP rate. The removal of the lower earnings limit would mean that all employees, regardless of their earnings, are entitled to sick pay. This could further increase financial burdens, especially if an employee’s absence spans several weeks.
Proposals to ban or limit fire and rehire practices are also being considered. If passed, this would require businesses to approach workforce restructuring with greater caution, limiting their ability to adjust staffing levels to meet changing business conditions. For companies that rely on this flexibility, such as those with a temporary workforce, managing workforce changes could become more complex. Businesses may need to explore alternative strategies to handle fluctuations in staffing needs, including optimising the use of temporary workers and enhancing workforce planning processes. This shift could impact how temporary staff are managed and integrated into the business, requiring more strategic oversight and careful planning.
Changes to zero-hours contracts are expected, with the potential for these contracts to be replaced by arrangements based on average hours worked over a 12-week period. While some companies and workers favour zero-hours contracts for their flexibility, the new legislation could complicate workforce management for businesses.
The proposed right to switch off, a code of practice encouraging employees to disengage from work outside of contracted hours, may carry penalties for non-compliance. While this may help create healthier work-life boundaries, it could also increase administrative burdens for businesses.
Recruitment is already becoming increasingly difficult for businesses, and the anticipated legislative and budget changes will only exacerbate these challenges.
Businesses will face rising costs related to taxation, wages, and employee benefits. For example, a 2% increase in National Insurance contributions, coupled with a 5% rise in the National Minimum Wage, could increase the cost of employing a full-time worker by around £1,500 per year. Companies may need to adjust hiring budgets and be more selective about filling vacancies.
As employment laws evolve, businesses will need to adopt stricter hiring practices. The potential for unfair dismissal claims from the first day of employment means companies must invest more in pre-employment screening and onboarding processes to reduce risk. Probationary periods will need to be clearly defined, with set performance goals and ongoing documentation.
With flexible working becoming a day-one right as of April 2024, businesses will need to adapt. Employers may have to accommodate more flexible work arrangements, which could require adjustments to work schedules and increased administrative burdens. This shift will challenge industries where on-site work is essential, such as manufacturing or hospitality.
Given the scope of these potential changes, businesses should start preparing now to mitigate any adverse effects:
The October budget and proposed legislative changes present a complex mix of challenges for businesses, particularly regarding hiring and workforce management. Rising operational costs, stricter employment laws, and increased compliance requirements will require businesses to adapt quickly. By considering these potential scenarios and taking proactive steps now, businesses can better navigate the challenges and opportunities presented by the upcoming budget and legal reforms. At CMD Recruitment, we are ready to help you stay ahead of the curve.
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