Employment / Labour law changes in the UK

UK employment laws are some of the most rigorous in the world and are set to be strengthened further by the new Labour government.

Proposed reforms are aimed at improving workers’ rights and addressing economic disparities while ensuring that employers are better aligned with the new government’s social and economic goals.

For U.S. acquirers and businesses planning to expand into the UK, understanding these changes will support smooth integration into the UK market, as these changes may impact deal pricing, hiring, compensation, tax obligations and overall employment practices.

In this article, are some headline points that overseas acquirers might be interested to know about. Our fantastic employment law specialists are able to provide further detail and we have included links to further reading.

National living (NLW) and minimum wage (NMW) increases

Effective from 1 April 2023, NLW and NMW will both increase significantly. NLW and NMW increase each April in any event, but these rises are significant.

For overseas companies looking to operate in the UK or already running businesses here, these changes will increase the minimum wage costs, particularly in sectors with a high concentration of lower wage workers such as retail, hospitality and logistics. Employers will need to factor these increases into their workforce planning and budgeting, as non-compliance with the NMW laws could result in penalties or reputational damage. Additionally, the Labour government has indicated that it will crack down on employers found violating NMW regulations, leading to a stricter enforcement environment.

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Reform of employer national insurance contributions (NICs)

National Insurance is a tax on earnings that is paid by both employees (deducted from their wages through payroll) and by employers (on top of the wages they pay out). NICs are also paid by the self-employed from trading profits. Technically, National Insurance is a social security contribution rather than a tax, but it’s a compulsory payment and therefore feels like a tax.

The government has not increased employee NICs, but has announced an increase in employer NICs from 13.8% to 15% (the amount employers pay on top of their wage bill). In addition, there is a reduction in the threshold at which employers start paying employer NICs increasing the cost even further.

The proposed changes will likely affect acquirers who plan to establish operations in the UK or expand their workforce. Employer NICs are already a major cost for businesses in the UK and any changes to the rates or thresholds will impact overall payroll expenses. U.S. acquirers/current UK business owners must factor in higher staff costs particularly when considering valuations.

Strengthening worker rights

Another key component of the Labour government’s agenda is strengthening workers’ rights, particularly around job security and working conditions. The government plans to introduce legislation that will make it harder for employers to use zero-hour contracts and ensure that workers have a clear path to permanent employment after a certain period. This proposal is designed to provide greater stability for workers and reduce the prevalence of insecure work arrangements.

A strengthening of the protection around the rights employees have in the UK not to be unfairly dismissed has been proposed, but has not yet come into force. Currently there is a 2 year qualifying period of employment before an employee can claim unfair dismissal. This 2 year qualifying period will be removed but the time frame as to when this comes into force is not yet known.

For companies considering entry into the UK market, this could mean a shift in how they contract with staff and to ensure compliance in their processes after acquisition, but this will also require thorough due diligence during any acquisition. Zero-hour contracts, which are common in certain industries, will likely become more tightly regulated, potentially requiring employers to offer more predictable hours and greater job security. Compliance with these changes will require careful planning and consultation with employment law experts to ensure contracts and labour practices align with the new framework.

Paternity leave and parental leave will become day one rights. In addition, the right to take bereavement leave will be extended. The timeframe for the introduction of these rights is not yet known.

This change will necessitate adjustments to the leave policies and benefits structure of companies in the UK. Employers will need to ensure that their policies are in line with the new entitlements and that they have the systems in place to manage increased absences while maintaining business operations.

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