Low-paid workers have most to gain from giving UK workplaces a security upgrade - Resolution Foundation

Low-paid workers are most likely to lose their jobs during downturns, be employed on a zero-hours contract and miss out on sick pay if they fall ill, so should gain most from the Government's proposed shake-up of Britain's workplaces. But the reforms will require careful implementation to ensure that they make a real difference to workers' lives, according to new Resolution Foundation research published today (Thursday).

As the Government prepares to publish its Employment Rights Bill, Low Pay Britain 2024 examines how low earners are affected by high levels of insecurity in UK workplaces, and how the Government's proposed reforms might affect their working conditions.

The UK's high level of job insecurity is encapsulated by the fact that it places fewer restrictions on employers dismissing their staff than all but five OECD countries.

The UK's two-year qualifying period for protection against unfair dismissal is in stark contrast to 25 (out of 37) OECD countries, who have qualifying periods of five months or less. Low-paid workers are most affected by this lack of protection as they were twice as likely to have lost their jobs involuntarily during the past two downturns as high-paid workers.

To address this, the Government proposes offering ‘day one' rights against unfair dismissal.

The report recognises that full-scale day one rights would indeed be a significant change – giving maximum protections to new staff, but also creating a risk of lower job mobility. For example, the Netherlands, which has a qualifying period against unfair dismissal of two months, has lower hiring rates than the UK.

The Government has acknowledged this risk by saying that employers can ‘continue to operate probationary periods'. However, there is ambiguity over what this means in practice as probation periods don't currently have clear status in UK employment law.

The Foundation says the Government can boost job security, while mitigating the risk of lower job hires, by giving its proposal for probationary periods legal teeth. Allowing only some forms of reasonable dismissal during probationary periods that were limited to a maximum of six months, for example, would still hugely reduce the qualifying period for protection against unfair dismissal.

A second key area of job insecurity in Britain is the high prevalence of workers on zero or short-hours contracts. These give workers very little security of hours or income from one week to the next. Low earners are most affected – one-in-twelve are currently on a zero-hours contract, more than ten times the share among high earners.

The Government has proposed addressing this with a new ‘right to a contract that reflects the number of hours they regularly work', though what this means in practice is still to be determined.

The Foundation says this policy approach is welcome, but needs to be designed carefully so that it solves the right problem – namely the lack of security that workers have over their regular working hours.

Doing so would require a different approach to the often cited ‘right to banded hours' introduced in in Ireland in 2019. This focuses on maintaining a workers' total earnings over a twelve-month period, and doesn't address the problem of week-to-week volatility. A more appropriate focus for the UK would be to guarantee minimum regular working hours – such as over a week or fortnight – based on previous working patterns. This would give workers the security of hours and earnings they need to plan ahead.

Low-paid workers in the UK also feel the brunt of job insecurity when they fall ill, and receive little or no income protection. Two-in-five low earners would expect to receive no sick pay, or just the statutory minimum, were they to fall ill for a week, compared to just one-in-eight high earners.

The Government's proposed reforms to Statutory Sick Pay (SSP) – extending eligibility to low earners, and obliging employers to make payments from day one – would help many of the 1.1 million low-paid workers who currently aren't eligible to receive support, and those facing short sickness absences.

However, in order to make a real difference to people's lives, the Government needs to go further and significantly raise the level of SSP. Currently, a worker in the UK on average pay who is absent for four weeks would receive just 11 per cent of their previous earnings in the UK, compared to 68 per cent across the OECD. If necessary, the Government could help small employers with the higher cost of increased sick pay in a similar way to how it supports them with maternity pay.

Nye Cominetti, Principal Economist at the Resolution Foundation, said:

“Low-paid workers are the most likely to lose their jobs, not know how much work they've got from one week to the next, and miss out on sick pay if they fall ill. They've got the most to gain from the Government giving UK workplaces a security upgrade.

“But it's crucial the Government gets the detail of their reforms right. Better protection against unfair dismissal must be balanced against the risk of putting firms off hiring, while action against zero-hours contracts must focus on the pernicious problem of volatile and insecure working hours from one week to the next.

“For all the talk of radical reform, much of what the Government is proposing would simply bring the UK more into line with many other advanced economies. That alone would greatly boost working conditions for many low-paid workers.”