Depending on your political views, and on whose opinions you rely when it comes to the UK economy, businesses may be feeling concerned about what the next year will bring. As we see an increase in National Insurance Contributions (NICs) and the minimum wage, and greater protections for employees looming in the near future under the Employment Rights Bill, some businesses are wary of taking on new staff, concerned about both the costs and their ability to let such staff go if their performance is not up to scratch, following the extension of unfair dismissal protection to all employees from day one of employment. Whilst we understand that it will remain possible to dismiss during contractual probationary periods, we do not yet know what how long these will be, or what procedures will apply in such cases.
So: how concerned should you be? And what can you do to protect against being ‘stuck’ with employees who are simply not up to scratch when the Employment Rights Bill comes into effect? In the event that an employee does have the right to claim unfair dismissal – either now or in the future – what can you do if their performance is simply not up to scratch?
How concerned should employers be?
There is no doubt that employment costs are set to increase, with the annual increase in National Minimum Wage and the increase to employers’ National Insurance Contributions. For those businesses paying more than the minimum wage, it may be possible to absorb some of the increase in NICs by way of lower pay rises and/or by offering benefits which do not attract NICs, such as increased pension contributions. However, for those businesses relying on staff paid the minimum wage, particularly in the retail and hospitality sectors, this will not be an option. These businesses may well have no other choice than to look to either cut costs (potentially via reductions in headcount) or to increase income – through rising prices.
Cutting costs
All businesses will need to look carefully at their cashflow and plan ahead to manage the increasing costs, taking steps to ensure that they will not be placed into financial difficulties. If employers will need to make changes to terms and conditions, we would recommend taking advice on how to manage this sooner rather than later. For the time being, it remains possible to make changes (even resorting to unpopular fire and re-hire tactics) provided that there is a reasonable business need and the correct procedures are followed. This is likely to become significantly more difficult once the Employment Rights Bill comes into effect, and employers would therefore be well-advised to review terms and conditions and working practices now, if it seems likely that changes will be necessary.
If redundancies are likely to be required, then employers will need to ensure that they comply with relevant consultation requirements and, where 20 or more jobs are at risk, with requirements to notify the Secretary of State at least 30 days prior to the first redundancy taking effect. This notification requirement will also apply where an employer is proposing to ‘fire and rehire’ 20 or more staff, or is otherwise making substantial changes to working arrangements or terms of employment. We would therefore always recommend taking advice to ensure that you are aware of whether this requirement will apply in your particular case. Failure to notify is a criminal offence which can lead to prosecution and, on conviction, a fine for the company and/or officers of the company.
What about managing poorly-performing employees?
Probationary periods
At present, it remains the case that (in most cases) employees will not be able to claim unfair dismissal until they have two years’ service. The Government has indicated that this will not change until autumn 2026. That being the case, for the next 18 months, employers will be able to carry on ‘as usual’ when hiring new recruits.
However, we would recommend that now is a good time for employers to review contracts and policies/ procedures on probationary periods, to ensure that these are being used correctly and consistently.
Until the Employment Rights Bill comes into effect, there is little risk to employers in not managing probationary periods effectively, as they will still retain the ability to dismiss regardless, provided the employee does not have two years’ service. However, once the Bill is in force, this will change. Getting into the habit of ensuring that probationary reviews are carried out consistently and on time is likely to put employers in a much better position to ensure that staff don’t ‘accidentally’ gain the right to claim unfair dismissal as a result of a probationary period not being managed correctly.
Provided employers ensure that they are managing probationary periods properly, there remains little risk in employing new staff at the present time. There is plenty of time between now and the date on which the Employment Rights Bill comes into force to assess whether that new recruit is up to scratch, and the proposed changes should not act as a disincentive to recruitment.
We will of course keep you up to date with the progress of the Bill and the dates – and procedures – of which you need to be aware. However, in the meantime, it makes sense to tighten up your procedures, and ensure that all managers are aware of the importance of following these for all new recruits. It may well be that these will need to change in due course once we have more detail about the new provisions, but these should be easier to implement consistently if managers are already following a set process in all cases, and understand the importance of doing so.
Employees with unfair dismissal rights
Currently, in most cases only those employees with over two years’ service can claim unfair dismissal. As already mentioned, under the Employment Rights Bill this will be extended to all employees, with the exception only of those dismissed in line with the (yet to be announced) probationary period provisions of the Bill. However, that does not and will not mean that employers cannot manage poorly performing staff, ultimately dismissing them if they do not meet the required standards.
All employers would be well-advised to ensure that their performance management procedures are up to date, and that all managers are trained in and understand the importance of following the correct procedures in all cases. Employees must be informed of the areas in which they are failing to meet the required standards, set SMART targets, and realistic timescales in which to achieve them. Training and support should be given where required, and all stages of the process should be clearly documented in writing so as to minimise the risk of claims, and to put employers in the best possible position to defend any claims which do arise.
We would recommend reviewing and updating performance management procedures regularly to ensure that they remain fit for purpose, and taking advice at an early stage if at all unsure. The team at Tyr are always happy to assist with reviewing and updating policies and procedures, training managers and advising on any individual process if required.
However, it is always worth remembering that performance management procedures can be time- consuming and invariably cost money. Therefore, the best solution is of course to get it right the first time. With that in mind, and given the forthcoming changes to unfair dismissal law, investing time in ensuring that recruitment procedures are robust is likely to become ever more important going forwards.
Contact details
Gemma.Sherbourne@tyrlaw.co.uk +44 (0)7535 652758 +44 (0)113 521 7556
