As the Labour government’s new employment laws come into effect around October, organisations across the UK are preparing to adjust to a more employee-focused regulatory landscape. While these changes aim to offer greater protection and rights for employees, they will also increase the costs associated with hiring, retaining and managing staff. For many businesses, outsourcing non-core roles may provide a strategic solution to these rising costs and operational challenges.
Key Changes Impacting Organisations
Several new regulations are set to take place that will significantly alter the employment landscape. Among the most notable, from a cost-conscious perspective, are:
1. Unfair Dismissal Protection from Day One
The plan to make unfair dismissal protection a day-one right is one of the most significant changes. Traditionally, employees needed two years of service to claim unfair dismissal but come October, any dismissal will require a fair reason and process, even during probation. This shift could increase the number of employment tribunal claims, given that all employees will have unfair dismissal protection from the outset
Cost Impact: Businesses will face increased legal risks, necessitating more rigorous dismissal processes. This could lead to more employment tribunal claims, legal fees, and the need for robust performance management strategies.
2. Statutory Sick Pay - Immediate Entitlement
Under current rules, employees must be off work for more than three consecutive days and earn above a certain threshold to qualify for SSP. The new proposals eliminate these requirements, making SSP payable from the first day of sickness for all employees, regardless of earnings. While this provides greater security for workers, it increases costs and administrative burdens for employers. It could also potentially lead to more short-term absences, adding further strain on business operations.
Cost Impact: Increased payroll costs and administration, the potential for higher short-term sickness absence rates, and the need to update HR policies to reflect the new SSP rules.
3. Day-One Parental Leave Entitlement
Labour intends to make unpaid parental leave a day-one right. Currently, employees must be employed for at least one year to qualify for this benefit, which allows up to 18 weeks of leave per child until their 18th birthday. This change would make all employees eligible for parental leave immediately, which could lead to operational disruptions, especially in smaller businesses, and increase the need for temporary staffing.
Cost Impact: Potential for workforce disruption and increased administrative complexity. Businesses may need to enhance workforce planning and temporary staffing solutions to cover the absences of employees taking parental leave from day one.
The Rising Costs and Risks of Hiring
With these added protections and benefits, the overall cost of hiring is rising. Businesses must now be more cautious in their recruitment processes to ensure they select the right candidates. A recent survey by the Institute of Directors found that 57% of business leaders are less likely to hire new workers due to these planned changes in employment rights legislation, highlighting the increased apprehension among employers.
The High Cost of a Poor Hire
Hiring the wrong person is more than just a costly mistake—it can have significant and far-reaching consequences. Beyond recruitment fees and training expenses, a poor hire can lead to lower team morale, reduced productivity, and even reputational damage. Under the new laws, any misstep in dismissing a poor performer could lead to immediate legal repercussions, making every hiring decision more critical than ever.
The financial impact of a poor hire can easily amount to three times the employee’s annual salary when considering the costs of lost productivity, disruption, legal fees, and the need to rehire. Furthermore, a hiring error can disrupt team dynamics, lower overall employee engagement, and potentially damage client relationships.
Outsourcing as a Strategic Solution
Amid these challenges, outsourcing emerges as a strategic solution for reducing costs and mitigating risks. By outsourcing non-core roles, businesses can focus on growth and strategic priorities while managing costs more effectively.
4 Key Benefits of Outsourcing:
1. Reduce Hiring Costs
Outsourcing eliminates the need for recruitment fees, onboarding expenses, and training costs. It also protects against the financial consequences of hiring someone who doesn’t fit the role or the company culture.
Cost-Saving Impact: No need for recruitment or training, and reduced risk of hiring errors.
2. Avoid Sickness and Leave Costs
When roles are outsourced, businesses are not responsible for covering statutory benefits like SSP or holiday pay. This allows organisations to avoid the financial burden of employee absences.
Cost-Saving Impact: No obligation to cover statutory benefits, reducing overall payroll costs.
3. Flexibility and Scalability
Outsourcing provides the flexibility to scale operations up or down based on business needs without the complexities of hiring or redundancy processes. This adaptability is particularly valuable in today’s uncertain economic environment.
Cost-Saving Impact: Avoid long-term employment commitments and complex redundancy processes during downturns.
4. Access to a Wider Talent Pool
Outsourcing enables businesses to access specialised skills and expertise that may be costly or difficult to hire in-house. This allows organisations to focus on their core activities while leaving specialised tasks to experts.
Cost-Saving Impact: Access to high-level expertise without paying premium salaries or additional recruitment costs.
Adapting to Change with Outsourcing
The introduction of these new employment laws will increase the costs and risks associated with hiring. For organisations striving to remain competitive, partnering with an outsourcing provider, like SmartPA, offers a flexible, cost-effective solution to navigate these regulatory challenges as it allows organisations to mitigate risks, reduce costs, and maintain operational efficiency in a rapidly changing environment.
As the employment landscape evolves, so must business strategies—outsourcing may well be the key to maintaining compliance and profitability in this new era.
About SmartPA
SmartPA leads the transformation of admin and business support services through technology and education, while our mission is to unleash potential by supporting young people and women to become business role models for future generations. Powered by a global team of passionate and accredited SmartPAs, we accelerate the success of over 5,000 businesses worldwide, delivering impactful outsourced support that allows organisations to focus on what they do best. With a Centre of Excellence in the UK, near shore hubs in South Africa and Uganda, and an offshore hub in Malaysia, we are dedicated to making a difference.
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