The Employment Rights Bill could prove very costly for small businesses.

Other opinions are available, but this is the prevailing take as uncertainty around the bill increases. What is much clearer is that a sea change in recruitment lies ahead. And this means investment. How can small firms balance spending with safeguarding cash flow?

Why are small firms concerned about the new employment bill?

There has been no little debate around the Employment Rights Bill, which is due to become law before the end of the year. Much of this has been focused on how the proposed measures will affect small businesses and the potential threat it poses to already under-pressure margins.

In an attempt to modernise employment law, and notably in response to the prevalence of zero-hour contracts and the rapid spread of the “fire and hire” culture, under the new bill, employees will enjoy, among other things, a raft of day-one rights, including in relation to paternity leave, parental leave, statutory sick pay and holiday entitlement.

While the push back against exploitative employment terms is arguably well overdue, the fear among small businesses is that recruitment mistakes will become a lot more expensive as a result of the new protections given to new employees, and given the current state of the market, such added financial pressure will prove one burden too far for many.

According to the Federation of Small Businesses, the new bill could end up increasing costs for small firms by as much as £5 billion a year, which is a staggering amount. There is also the knock-on effect on recruitment levels to consider and the possibility that unemployment rates could be pushed even higher.

How alternative finance can help with recruitment system change

Striking the balance between protecting workers against exploitative employment practices and ensuring that small businesses aren’t lumbered with extra costs that they are ill-positioned to afford is no easy task.

However, whatever the final bill looks like, recruitment is going to change in a significant way, and this means adaptation. And all adaptation requires investment. How can small firms manage the costs at a time when accessing finance from traditional lenders is proving increasingly challenging?

This is where alternative finance can help.

Small business lending from traditional sources remains subdued in Q4 2025, with almost 40% of firms finding accessing affordable finance one of their biggest challenges. Against this backdrop, services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in the current funding climate.

These alternative finance facilities, which offer a more easily accessible, affordable and personalised approach to lending, are helping small businesses survive and target recovery, stability and growth.

Notably, the Growth Guarantee Scheme is providing a wide range of finance facilities to smaller firms, including asset finance, invoice finance and asset-based lending. This is further proof that alternative lenders are increasing filling the small business funding gap.

Small firm finance options for adapting recruitment models

The terms of the Employment Rights Bill are not yet set in stone, and there is the possibility that some measures will be toned down. But maybe they won’t. Regardless of what the new legislation looks like, how small businesses approach recruitment is going to have to change.

The bottom line on all of this? Small firm will have to adapt and this comes at a price. Access to finance will be critical. This is why it is important that key decision-makers are aware of all the finance options available to them, including the services of alternative lenders.

To find out more about A&T Business Associates services, contact Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.