It’s been 14 years since Labour was last in power so what does a new Labour government mean for the world of work as we know it? In their manifesto Labour committed to “make work pay” and deliver a “new deal for working people” with legislation being introduced within 100 days. However, they have also committed to consulting “fully with business, workers and civil society on how to put plans into practice before legislation is passed”. Whether those two commitments can both be kept in reality remains to be seen but here are the top changes to likely impact reward and benefits:

1. Pay for the lower paid - Increases to National Minimum Wage and a revision of Low Pay Commission remit to include cost of living when recommending future NMW levels
2. Equality - Strengthening rights to equal pay across gender, ethnicity and disability including changes to pay gap reporting
3. Workers Rights - Banning of zero-hours contracts, removing the ability for businesses to “fire and rehire” employees on less favourable terms
4. Benefits - The right to parental leave and sick pay from day one of employment and protection from unfair dismissal.

Labour has also committed to strengthening trade unions and creating a Single Enforcement Body to uphold workers' rights, which will likely indirectly impact reward and benefits in the future.

In addition to what is explicitly referenced in the manifesto, Labour has previously committed to a range of other changes to workers' rights including introducing a Single Status of Worker that could see many companies needing to make changes. There are also further benefit changes that have been committed to including paid carers leave, menopause support, clarity regarding bereavement leave entitlement and flexible working as the default.

Pay for the lower paid: Make the minimum wage a genuine living wage

The Low Pay Commission currently estimates the National Minimum Wage (NMW) needed “to maintain the bite at two-thirds of median earnings and protect progress made to end low hourly pay for this group, without recommending any further revisions to the age threshold”, would be c.£11.89, but could be as high as £12.18. This would mean an increase of between 4-6.5%. However, Labour has committed to change the remit of the Low Pay Commission so it accounts for the cost of living. Whilst no further details are given as to how this would be calculated, it can be assumed that recommendations from the Low Pay Commission regarding the NMW will likely increase.

Labour has also committed to removing the age bands linked to NMW which will lead to cost increases for some employers, particularly sectors that employ a large number of younger people, such as hospitality and leisure.

If legislation is brought in within 100 days, then for most companies it will force a change ahead of their next annual pay review. Therefore, what can companies be doing in anticipation of these changes?

• Modelling to understand potential cost increases. Whilst the actual figures are yet to be determined, businesses can model scenarios to understand what the potential cost increases might look like.
• Consider the impact on pay structure. With the increases to NMW in April 2024, many organisations found increased compression at their lower grades. Will further increases to NMW prompt a review of your pay structure? If so, would it likely involve adjustments to the current structure or a wider review of design? If you are reviewing your pay structure, then it is also worth asking whether roles are graded effectively and whether you have market data on which to build your pay structure. Ensure a new structure is built on strong foundations.
• Will uplifting lower-paid employees in line with NMW increases create compression between employees and line managers' pay? Do you increase the manager’s pay to preserve some or all of the gap or do you review on a case-by-case basis?

Equality: Strengthening rights for equal pay and changes to Pay Gap Reporting

Labour has been clear that they think the closing of the gender pay gap has stalled under the Conservative government and have committed to going further and faster to close the gap. They will expect “large” companies to publish action plans to close the gap and for outsourced services to be included in pay gap reporting.

In their manifesto Labour committed to take action to:

• Reduce the gender pay gap and include outsourced services in the reporting regulations
• Introduce ethnicity and disability pay gap reporting as mandatory for companies with 250+ employees, which mirrors gender pay reporting
• Introduce a Race Equality Act to enshrine in law the right to equal pay for Black, Asian and other ethnic minority people
• Introduce a full right to equal pay for disabled people

What steps can companies take in anticipation of these changes?

• Assess what data you collect and the reliability of the data. Many companies don’t collect data outside of gender or have incomplete data. If data isn’t collected, can systems be used to collect the data? Do processes need to be adapted to collect the data on an ongoing basis?
• If data is incomplete, understanding why this is the case can help improve data collection. Employees can be nervous of what the data is used for so improved communications could help. It can be the case that employees meet the definition of disabled but don’t identify as disabled. Clear communications can help with this and can then be incorporated into any narrative showing that steps have been taken to ensure the data is as meaningful as possible and that your organisation is committed to equity not just meeting new legislation requirements.
• Review the use of outsourced services. To what extent are outsourced services used? There are likely some practical challenges with this proposed change and therefore it remains to be seen how this will be managed practically but understanding the extent of the use of outsourced services will be a start.
• For larger companies, start to consider what actions you could take to close the gender pay gap but also what initiatives are already in place that support closing the gap. This might include:
  • Removal of unconscious bias in the recruitment process
  • Mentoring programmes
  • Flexible working practices
  • Family-friendly policies
  • Forums or working groups specific to supporting women in their career

Changes to workers' rights regarding pay

Labour's commitment to “Make Work Pay” outlined several proposed changes to workers' rights that will directly impact people’s pay.

Labour has also committed to the removal of “fire and rehire” meaning businesses will not be able to make an employee redundant and re-hire them on less favourable terms. They will also ban zero-hours contracts giving workers the right to a contract that reflects the hours they usually work over 12 weeks as a reference period.

Although not explicitly referenced in their manifesto, Labour has also previously voiced their intention to introduce a Single Status of Worker. Labour believes the current system of distinguishing between “employee”, “worker” and “self-employed” is confusing and open to misuse. Therefore, they propose a single status of worker to differentiate from those who are self-employed. For some companies that do make this distinction, this could have a significant cost impact depending on their current number of “workers”.

In anticipation of these changes, organisations may want to consider:

• Cost modelling - looking at historical data - what could the increased costs be? How might these costs need to be incorporated into the next budget if these changes are indeed brought in within the next 100 days?
• Upskilling managers - training managers to ensure they are confident in what the changes mean may help alleviate concerns
• Policy review – where do policies need to be reviewed and amended?
• Communication – how can these changes be best communicated to employees, so people understand the changes and how they will be impacted

Alongside changes that will directly impact pay, Labour has also committed to other changes to workers’ rights, including:

• Protection from unfair dismissal from day one of employment
• Strengthening of Trade Unions and the creation of a Single Enforcement Body
• The right to switch off – workers will be able to have constructive conversations on working practices or contract terms that benefit both the employee and the business
• Rights of the self-employed – the right to a written contract - action that can be taken dealing with overdue payments, further protection for Health and Safety, and blacklisting
• Improvements to employment tribunals including increasing the time limit of bringing a claim for all claims to 6 months (in line with redundancy and equal pay claims)
• Introduction of collective grievances
• Redundancy rights - making the right for consultation to be determined by the number of people impacted across the whole business rather than one workplace
• Maternity discrimination – making it unlawful to dismiss a pregnant woman for up to six months after her return to work
• Changes to give employees a stronger voice in the workplace

 Employee Benefits

Movement in the labour market is declining and one reason suggested by Labour is the “lengthy wait for basic rights”. Labour suggests that people who “switch jobs get pay rises on average four times higher than those who do not” but the waiting period for benefits such as sick pay and parental leave discourages people from moving roles and therefore leads to them being disadvantaged in terms of pay.

Therefore, Labour is proposing day-one rights for all workers for parental leave and sick pay.

In terms of Parental Leave, Labour will make it a day-one right although hasn’t suggested it will necessarily review the level of financial support. In terms of sick pay, Labour will strengthen Statutory Sick Pay (SSP), although hasn’t been specific as to what this means exactly, removing the lower earnings limit and removing the three-day waiting period.

Although not explicitly referenced in their manifesto, Labour has also previously voiced their intention to make other changes to benefits:

• Carer’s leave – to build on the recent introduction of unpaid Carer’s Leave and consider making it paid leave.
• Bereavement leave – Labour plans to make the law clearer on bereavement leave rights for all workers, although haven’t been specific as to whether this will be paid
• Menopause support – Labour will require businesses of 250+ employees to produce Menopause Action Plans to outline how they support employees with menopause and that they will provide guidance to organisations as to how they can best support employees
• Flexible working as the default and available from day-one

 

If you would like to discuss how any of the 'Make Work Pay' key points flagged could impact your organisation, please contact Cathryn Edmonson.

 

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