On June 23rd 2016 the UK made possibly the most significant decision in recent history surrounding its future – those in favor of Brexit triumphed in the referendum and the country will now leave the EU.
This article is not designed to present the arguments for or against decision, but rather to look at how to prepare your small business for Brexit and the consequences of leaving the EU. Will it really have a major impact on issues such as migrant workers (and UK workers in the EU), and employment law or is it all scaremongering?
Chris Berry, chief executive of UK-based HR software provider CIPHR, believes that most UK businesses will be affected in one way or another. He says:
“Across the hundreds of UK organizations we provide people technology for, very few will remain unaffected by Brexit developments. A significant proportion of the UK workforce will face right-to-work issues. We see the implications right across our client base, which covers the technology, finance, retail, education, healthcare, housing and professional services sectors. For those running organizations, the strategic impact of managing personnel through the upcoming changes will become one of their biggest business considerations.”
And if you’re a company based in the U.S. or outside Europe, you may think that all this has nothing to do with you – or wonder why people are suddenly talking about “breakfast” – but economic experts warn that the unpredictability of the UK exit from the EU poses a risk to global stability.
- Employment regulation
- Impact on EU workers in the UK
- How HR software can help you prepare for a possible “Brexit”
- The features to look for in a HR solution.
No immediate effect
It’s important to mention that just because the British government has triggered Article 50 to start the exit process, laws aren’t going to start changing straight away. Laura Mariani, owner/founder of management consultancy The People Alchemist, says:
“Following Article 50 being triggered, plans for the Great Repeal Bill to repeal the 1972 European Communities Act have been laid out. This will lead to all existing EU legislation be copied across into UK law to ensure a smooth transition on the day after Brexit and to avoid disruption to businesses, laws which then the UK Parliament can “amend, repeal and improve” as necessary. This will lead to a necessary review, update and consequent roll out and embedding of potentially full set of new legislation and/or changes.”
However, Mariani says that this will be a substantial administrative burden for businesses, especially together with understanding the subtlety necessary for full compliance.
Stephanie Paterson, partner at employment law specialists Ramsay Paterson, says it will be status quo for now.
“My understanding is that certainly in the shorter term, no workforce laws will be immediately affected, as all of EU law is being ‘lock stock and barrel’ incorporated into UK law upon our eventual exit of the EU (which obviously will still take some time – possibly a couple of years – until then, we are still a full member),” she says.
Potential laws at risk of being repealed post Brexit if a Conservative government remains:
- EU derived health and safety regulations
- Parts of TUPE (protects employees whose business is transferred to another business)
- Legislation protecting agency workers
- Some elements of discrimination law, such as uncapped compensation or high levels of liability for equal pay (also discrimination on which there is less political consensus, such as age discrimination)
Source: TUC and Michael Ford QC
Paterson explains that the UK government will then carry out an assessment as to what laws the country may want to keep and what it may lose or vary.
“What the outcome of this will be is anyone’s guess really,” she says. “I have read various commentaries on this and whilst we can perhaps start to guess at which laws might be most under the spotlight by looking at which EU laws the UK objected to most, a lot will depend on the political climate then (and of course which government is in power).”
According to Mark Beatson, chief economist for the CIPD, professional body for HR and people development in the UK, which is maintaining a neutral stance in the debate, Brexit could, in theory, allow the review or repeal of legislation that came out of EU directives. However, this would depend on the nature of any future relationship between the EU and the UK.
“There may well be practical difficulties associated with any attempt to disentangle EU-derived requirements from non EU-derived requirements, especially where case law has drawn on domestic courts’ interpretation of EU Directives and on European Court of Justice rulings,” he says. “In addition, there might be questions about the desirability of such an exercise in areas where EU-derived legislation is regarded as beneficial.”
One of the most significant areas for HR that could be affected by this referendum is employment regulation, due to the large number of EU directives that have been introduced over the last 20 years or so.
However, the impact this will have is not clear, as the UK already has more flexibility than is sometimes realized over employment law.
UK employment law sometimes goes further than EU requirements. The UK’s minimum holiday entitlement is 28 days (inclusive of public holidays) per year for full time employees but the EU equivalent is for a minimum of 20 days.
“The UK has very different regulation on protection from unfair dismissal and on collective labor disputes to that in place in much of Europe, because these aspects are principally left to Member States,” says Beatson. “This degree of flexibility has enabled the UK to maintain the third most lightly regulated labor market in the OECD in terms of employment protection legislation.”
“Recent changes to the unfair dismissal qualification period and the introduction of fees for employment tribunal applications emanated from the UK, not Brussels, as did the introduction of the shared parental leave regulations in April last year,” he adds.
A further issue surrounding the decision over whether to leave the EU is around what will happen to EU nationals and their right (or willingness) to work in the UK. So far, the British government has given no guarantees on their rights, although EU laws will still apply until the UK officially leaves.
According to Simon Hudson, managing consultant at HR software provider Ceridian, due to the legal working rights issue, UK businesses could incur added administrative effort and the associated costs regarding EU employees, as well as prolong the recruitment process where non-UK nationals are involved.
“Although employers currently need to collect Right to Work information, the process may become much more detailed and there may be a need to ‘sponsor’ employees to assist in their immigration requests, should the UK vote to withdraw,” he says. “Immigrants to the UK also make up a substantial amount of the unskilled, low paying job market, and if the UK withdrew from the EU and its freedom of movement policy, businesses could have trouble recruiting skilled workers to fill positions.”
Amid claims that leaving the EU would enhance trading and create around 300,000 new jobs, it’s important to remember that several industries are experiencing a skills shortage and rely on foreign employees. CIPD research found that the UK care sector, for example, is in desperate need of migrant workers.
Recent research from the Federation of Small Businesses (FSB) in the UK revealed that:
- A fifth of small business employers employ non-UK EU citizens, with the majority of these employees already residing in the UK with the right to work here.
- Almost half of these businesses rely on mid-skilled workers, such as mechanics or care workers
- One in five rely on lower-skilled work such as farm workers and cleaners.
Mike Cherry, FSB National Chairman, says: “FSB research clearly shows the importance small businesses place on being able to access the skills and labour they require, particularly mid-skilled workers, who are non-UK EU citizens recruited here in the UK. Mid-level skills are vital for small firms, and businesses call for the right to remain for those EU citizens in the workforce here.”
“In some we see native senior team members 10 to 15 years away from retirement, while almost all other workers are non-native,” says Berry.
The pain of training
If companies were to lose their foreign employees, many businesses would struggle to maintain productivity and service levels.
“Despite what some in favor of the ‘Brexit’ might think, it is not just a case of replacing foreign employees with UK-born locals,” he says. “A reduction in the number of skilled workers from across Europe would force the UK government and businesses to invest more to train British workers to replace those that left as a result of the Brexit.”
This loss of skills is exacerbated by a skills shortage in the UK, with training in particular being less of a priority for UK firms compared to EU counterparts.
A recent report from the CIPD claims the UK is “sleepwalking into a low-value, low-skills economy”. The report found that:
- England and Northern Ireland together rank in the bottom four OECD countries for literacy and numeracy among 16 to 24-year-olds.
- Out of 19 countries, the UK ranks bottom of the class on young people’s’ computer problem-solving skills
- UK employers spend less on training than other major EU economies and less than the EU average. In 2010, the training spend per employee was €266 in the UK, compared with €511 across the EU.
Chris Hickey, Chair of the CIPD in Gloucestershire, said that this report couldn’t be more timely.
“We’re standing on the brink of Brexit which is intended to have a major brake on inward migration,” he says. “We already have one of the lowest skilled workforces in the developed world and have relied on migration to plug the gap. Choking off the supply of skilled and experienced workers will only damage the economy further. The government needs to make sure that the deal they do allows for a significant degree of free movement to attract people to come to live and work in the UK.”
The reality of wage rises
Research carried out just after the Brexit referendum found that the Leave vote tended to be bigger in parts of the UK where wage growth has been weakest since 1997, suggesting that Brits were expecting leaving the EU would result in an increase in wages. While there is debate about whether this will in fact happen, it’s important to be prepared.
“The question of whether access to European workers has depressed UK wages remains a political football,” says Berry. “But one way or another, organizations will inevitably find themselves paying more – so start budgeting for this.”
Key stat: By 2021, real wages in the UK (adjusted for inflation) will still not have recovered to their 2008 pre-financial crisis level
This would either by due to wage increases to attract top British talent, or the costs of retaining EU workers.
“Wages to UK staff will almost certainly go up to attract strong performers,” Berry says. “But if it remains possible to access lower paid European workers, via increased visa controls, administration costs can be expected to soar. Good HR systems will help keep internal administration costs down, offsetting a possible increase in the costs of visa permitting for European staff or higher costs for UK natives.”
From onboarding to offboarding
While working out how to retain your current crop of EU workers can seem like a priority, the reality is that many EU nationals may want to leave. Your business needs to be prepared for a potential exodus of employees – especially high-value talent that can easily find work outside of the UK.
“As a good employer, ensure appropriate documentation remains available in your systems for some time afterwards – allowing former staff access to their payslips, P60s, and anything else that supports their transition. Even a small amount of administrative support, such as this, will be welcomed by frustrated former employees facing difficult decisions.
Key stat: 60% of European doctors are considering leaving the UK
Berry’s advice is not to lost these valued employees’ details, as uncertainty still surrounds what the situation will be in the future.
“Remember, negotiations will be protracted,” he says. “We have no real clarity about the final outcomes. You might well find you’re in a position to invite staff back when the negotiations are complete. Keeping track of great former team members – or past applicants – helps reduce the cost of recruitment in the future.”
Prepare your small business for Brexit
According to Mariani, Brexit will be the biggest HR Transformation programme ever which, if used effectively, could turn on its head old paradigms regarding employment and employability.
“Proactive workforce planning will be crucial for businesses, and building a talent profile needs to start now with more varied people development avenues to address and raise the skill gap,” she says.
Mariani says these avenues would need to:
- Tackle the supply of candidates
- Consider wider demographics
- Provide a blend of skills
- Create intergenerational training
- Re-skill individuals and prioritize local talent which might become non-negotiable in time.
Mariani also believes that businesses need to explore different recruitment channels and look at underutilized groups to ensure they maintain a top-quality workforce.
She says: “This requires a proactive coordinated effort between private and public sector, education, and government to create a flexible, modular and scalable workforce and education, and a consequent VISA allowance plan to address shortages in the country.”
HR apps to help you manage your workforce
If you’re a business that is concerned about the impact of leaving the EU on your workforce and HR processes, then HR and/or workforce management software can help.
“Workforce management technology can help companies prepare for the potential Brexit by helping reduce labor costs and increasing productivity, while complying with labor laws,” says Hudson.
Software providers are also used to keeping on top of new regulations and being able to add features accordingly.
“Naturally if there are any changes in the law as a company we would review this and, if required, we would update our solution to help our customers around the world,” explains Edward Simpkins, EMEA business development manager at Deputy. “From an EU perspective each member country already has different rules and regulations. For example, in France they implemented a 35 hour working week which is different compared to the UK. An option to manage this has already been factored into Deputy.”
Simpkins adds: “We are able make any changes to the solution if there are any law or rule changes that would have an impact on businesses being able to communicate, schedule, and track and time attendance.”
Jonathan Richards, MD of BreatheHR, adds: “Whether you think we are in for good times of bad, every company must focus in on their employees if they are to thrive. Most people seem to agree that an exit will lead to tough times in the short term so companies will need to keep productivity high and costs under control. HR tech will give companies the right tools to effectively and efficiently manage their employees.”
What to look for in a HR app
Some key features to look for in a HR app to help you manage your workforce include:
- Benefits administration
- Customizable reporting
- Payroll integration
- Recruiting and onboarding
- Employee database
- Time and attendance management
- Performance management
- Self-service employee portal
- Compliance and regulation management
- Mobile apps.
According to Hudson, effective workforce management solutions help to:
- Keep employees engaged and empowered through better work-life management (shift trading, availability management, holiday requests, etc.), which helps businesses retain the best talent in an increasingly competitive labor market.
- Even when skilled labor is at a shortage, sophisticated forecasting and labor planning solutions maximize productivity and service while minimizing labor costs, by ensuring businesses have the right people in the right place at the right time.
Next steps to prepare your small business for Brexit
However long it takes for the UK to enact Article 50 and leave the EU (if, indeed, this even happens), you need to be prepared for any eventuality, and make sure your HR and workforce management processes are up to scratch. It’s time to start planning.
If you’ve decided that you need to implement new HR software or switch your existing solution to something that can help you deal with the UK leaving the EU, there is help at hand.
- Check out GetApp’s category leaders ranking of HR and workforce management software.
- Read what GetApp users think of the software from our comprehensive reviews.
This article was originally published on 9th June 2016 before the Brexit referendum and has been updated.