Survey shows UK firms pulling back permanent hiring after labour law changes

UK employers are scaling back plans to recruit permanent staff as new labour laws increase costs and operational complexity, according to survey data.

The findings point to caution among businesses adjusting to regulatory changes introduced by the government’s Employment Rights Act.

Hiring expectations remain historically weak outside the COVID period, suggesting companies are prioritising cost control over workforce expansion.

As organisations assess the financial and administrative implications of the reforms, permanent recruitment is emerging as one of the first areas affected, raising concerns about momentum in the UK jobs market.

Hiring plans weaken as costs rise

More than one in three employers now expect to reduce permanent hiring due to labour law changes, according to the Chartered Institute of Personnel and Development’s Labour Market Outlook survey.

Hiring intentions remain at their lowest recorded level, excluding the first year of the pandemic.

Three in four employers anticipate the reforms will increase employment costs, reflecting concerns about the broader financial impact of the new rules.

Businesses are factoring in direct payroll costs and administrative adjustments required to meet regulatory standards.

The survey highlights a shift in workforce planning as companies reconsider long-term hiring commitments.

Employers appear to be slowing permanent recruitment while adapting to compliance requirements and evaluating future cost pressures.

Employment Rights Act reshapes workplace rules

The Employment Rights Act secured parliamentary approval in December under Prime Minister Keir Starmer’s Labour government. The legislation introduced changes affecting employment conditions across the UK.

Original proposals to extend unfair dismissal protections to new hires were modified before approval. However, the final version retained key measures covering sick pay eligibility, zero-hours contract regulation, and expanded union rights.

These changes are reshaping employment frameworks and increasing employer obligations.

Organisations are reviewing contracts, internal policies, and workforce management practices to ensure compliance with updated legal requirements.

Compliance costs add pressure

Employers say the financial burden of the reforms could exceed the government’s estimate of £1 billion.

Additional costs linked to updating internal systems, training managers, and communicating policy changes to staff are contributing to the expense.

More than half of employers surveyed said they expect workplace conflict to increase due to the reforms.

This reflects concerns about managing new rules and addressing disputes arising from changes to employment terms and protections.

The Labour Market Outlook survey was conducted between December 18 and January 16 and included responses from 2,082 employers.

The findings provide insight into how businesses are adjusting their hiring strategies following parliamentary approval of the reforms.

Pay growth steady despite hiring slowdown

While hiring intentions have weakened, wage growth has remained stable.

The median basic pay award stayed at 3% for the seventh consecutive quarter, indicating consistency in salary adjustments.

Stable pay growth combined with reduced hiring suggests employers are maintaining workforce compensation while limiting expansion.

This pattern reflects a labour market balancing regulatory changes with broader economic conditions.

The survey findings show labour law reforms are influencing hiring plans, employment costs, and workplace management decisions.

As secondary legislation is finalised, employers are likely to continue adjusting workforce strategies in response to the regulatory environment.

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