Planned changes to employment law are set to increase business costs and curb hiring, with many employers preparing to scale back recruitment and reconsider the balance between permanent and flexible roles.
More than a third of organisations said they plan to reduce permanent hiring because of reforms linked to the Employment Rights Act, while overall recruitment confidence remains close to its lowest level outside the pandemic.
The figures come from the Chartered Institute of Personnel and Development (CIPD), the professional body for human resources and people development, in its latest Labour Market Outlook survey of more than 2,000 UK employers.
Employers brace for rising costs, more disputes
A large majority of employers expect the new measures to push up employment costs, with many also anticipating an increase in workplace conflict. Only a small minority believe disputes will fall, while a notable proportion remain unsure how the reforms will affect workplace practices.
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Ben Willmott, head of public policy at the CIPD, warned that the changes risked weakening job creation at a time of already fragile hiring confidence. “Against a backdrop of low business confidence and already weak hiring intentions, our research suggests there is a real risk that the Employment Rights Act measures will act as a further handbrake on job creation and recruitment.”
He urged the government to act to limit the impact on employers and support labour market stability.
“In response, it’s important that Government acts to try and mitigate these potential negative consequences, including through meaningful consultation and where necessary compromise on key measures still to be decided in secondary legislation.”
Permanent hiring under pressure
The survey suggests permanent roles could be most affected as employers respond to higher costs and increased compliance demands. The net employment balance, which tracks the difference between employers expecting to increase staffing and those expecting to reduce headcount, remains low.
Among organisations planning to cut permanent hiring because of the reforms, the balance falls into negative territory, pointing to a potential contraction in stable employment opportunities.
The CIPD said some employers may increase their reliance on temporary workers and self-employed contractors as a way of maintaining flexibility, which could lead to greater insecurity for workers despite the intention of strengthening employment protections.
There are also concerns about the practical burden of implementing the reforms. While government estimates suggest that some changes will take limited time for employers to understand, the CIPD said the reality is likely to be more complex, particularly where organisations must update internal policies, payroll systems and manager training.
Willmott said clearer communication and support would be essential, especially for smaller businesses. “We need to see a major communication campaign from Government to ensure smaller businesses in particular are aware of, understand and can prepare for the new legal obligations and know when they come into effect.”
He added that dispute resolution systems would need to be properly resourced to handle any increase in claims. “Just as important, the Government needs to ensure that Acas and the wider dispute resolution system have sufficient resources to help micro and small firms comply and avoid disputes and costly tribunal claims.”
Cost pressures, uncertainty weigh on hiring outlook
The wider labour market picture remains cautious. Median basic pay awards have held steady at 3 percent for several consecutive quarters, while relatively few employers expect significant recruitment difficulties in the coming months.
But the combination of legislative change, rising costs and economic uncertainty is prompting businesses to reassess hiring plans. Employers are weighing the benefits of new protections against the operational demands of implementing them, particularly where reforms affect dismissal rules, sick pay and contract arrangements.
The CIPD has called for continued consultation with employers and business groups, alongside clearer guidance to help organisations prepare for the changes and reduce the risk of disputes.
The survey is based on responses from more than 2,000 UK employers and examines hiring intentions, pay expectations and redundancy plans.
