Employment Hero has warned that upcoming employment rights changes could push more workers into temporary and contractor roles, as smaller businesses look for ways to manage higher compliance and labour costs. New survey data from the company found that one in five small businesses plan to increase their use of contractors or temporary staff in response to the reforms.
The company said that response risks creating a more precarious labour market at the point the legislation is intended to strengthen worker protections. If more roles move outside standard employment, workers could have less access to benefits and protections such as sick pay, predictable hours, and other entitlements tied to employed status.
Employment Hero said its platform data already points to an early shift in hiring patterns. Based on more than 120,000 employees across around 4,500 businesses, the company found that month-on-month employment growth in part-time roles fell by 0.3% in February, and by 3.6% for Gen Z workers. Over the same period, full-time employment growth rose by 0.9%.
The business said that divergence may indicate employers are reassessing how they structure lower-hours roles. Its interpretation is that some organisations may increasingly favour contractor or temporary arrangements instead of traditional part-time employment as legal obligations expand. The result, Employment Hero argues, could be a jobs market that becomes more polarised between highly contested full-time posts and more flexible, but less protected, work.
Other cost responses are also under consideration. The survey found that 30% of small businesses are thinking about raising prices, while 29% are reviewing salaries and benefits. More broadly, 84% of respondents said they expect to make changes to mitigate legislative risk, and 78% said the reforms will have a financial impact on their business. Flexible working requests were cited by 35% as a concern, statutory sick pay as a day-one right by 25%, and the National Minimum Wage by 40%.
The data also points to an information gap. Just 28% of those surveyed said they understood the specific requirements of the legislation, while 26% reported little to no knowledge of the reforms at all. For smaller employers, that combination of financial concern and limited clarity may shape decisions just as much as the legal changes themselves.
Kevin Fitzgerald, UK Managing Director at Employment Hero, said: “The Employment Rights Act was designed to deliver more security for workers. But our data suggests it could have the opposite effect for a significant number of people. Businesses may rationally respond to added complexity by shifting toward contractor and temporary employment models, but that shift could come at a cost to workers who end up outside the system entirely.”
