As UK Government cuts reporting regulations for thousands of SMEs, what are the employment law knock-ons?

The UK Government recently announced plans to free thousands of small and medium-sized enterprises (SMEs) from reporting requirements and regulations.

SMEs are currently exempt from certain regulatory requirements, such as gender pay gap reporting. EU-derived regulation defines an SME as an organisation with 250 employees or fewer. When developing new policy, the Government proceeds on the basis that businesses with under 50 employees will be exempt from new regulations imposed. For example, small companies are exempt from several of the accounting and reporting requirements in the Companies Act 2006. This means there is a middle ground of businesses with 50-249 employees who are subject to various regulations.

As a result, the Government is proposing to ‘redefine’ the regulatory threshold for small businesses, increasing it to 500 employees. In doing so, they estimate they will exempt 40,000 more businesses from what they describe as ‘red tape’. The publication seemed to hint that increasing the threshold to 500 was likely to be subject to a trial period, with a view to extending the exceptions further to businesses with up to 1,000 employees once the impact is measured and presumably accepted as tolerable. 

But what is ‘red tape’ in this context?

It is not clear from the announcements made.  Businesses above the threshold (now 500 employees from 3 October 2022) are subject to a number of reporting requirements and other regulations. The most well-known of these is gender pay gap reporting which requires businesses to publish their gender pay gap data every year. This system was created with the aim of improving transparency and opening up discussion on gender equality, thus initiating more meaningful corrective action. These changes risk losing valuable data from tens of thousands of businesses, therefore restricting the scope of any data analysis and subsequent conversation.  

Further than this, the plans announced suggest that as well as new regulations, the redefined small businesses will be exempt from current and future regulations which are currently under review, including retained EU law. Depending on the outcome of the legislative review initiated by the Retained EU Law (Revocation and Reform) Bill, speculation exists that this could potentially see small businesses being exempt from regulations governing pregnancy and maternity, working time regulations, TUPE transfers, and a host of other employment protections UK workers have come to expect and enjoy.

Commenting upon the changes, a UK Government spokesperson said: “This is not a mad rush to remove all safety regulations. It is making sure the regulations are ones you actually need and pertain to real issues businesses face”. However, representatives from Trades Union Congress said the Government was “turning the clock back for women at work” as well as representing a wider threat to workers.

The Government has caveated all of this with a statement that these exemptions “can be overridden in appropriate cases of the policy development process, including any consultations that might be undertaken”. Its aim is stated to be reducing the burden for growing businesses but it remains to be seen whether this has been balanced adequately with protecting the rights of the workers within them. After all, very often a workforce that is well-rewarded and respected will be better performing than one that is not.

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