What could Brexit mean for UK employers?

31 May 2017

Businesses must prepare themselves for the potential challenges they might face from the effects of Brexit on their workforce.

United Kingdom businesses heavily reliant on migrant workers from within the European Union (EU) will be watching Brexit negotiations closely over the coming months.

If the final deal restricts the free movement of workers into the UK, several sectors will see a major shift in workforce dynamics.

According to the Chartered Institute for Personnel and Development (CIPD), there were 2.26 million EU nationals working in the UK in September 2016, up nearly 10 per cent on the year before. 

More than half (56 per cent) of these workers are employed in either wholesale and retail, health and social work, accommodation and food services, construction and manufacturing.

Sectors most reliant on eu workers

EU nationals’ plans post Brexit vote

CIPD’s Labour Market Outlook for Winter 2016-17 found that almost one in three (29 per cent) employers say they have evidence that EU nationals looked to leave their organisation and/or the UK as a result of the Brexit referendum in June 2016, and a similar proportion (27 per cent) expect them to consider doing so in 2017.

These figures are even higher in the public sector, where two thirds of organisations employ EU nationals and 42 per cent have seen staff leave as a result of the referendum. 

On 24 March, Business Insider reported that the number of EU nationals registering as nurses in England had dropped by 92 per cent since the vote. 

In the agriculture (agri) sector, wages are already going up and farms are fighting over a smaller pool of employees, according to JLT Specialty’s Food & Agri Practice Leader, Simon Lusher. 

“Many employees went home for Christmas and didn’t return due to uncertainty over their futures in the UK,” he explains.

Workforce crisis 

According to HR consultant Mercer, the UK was already facing a “workforce crisis” prior to the vote owing to its ageing population. If the government limits net migration to 100,000 (from the 2016 figure of 335,000), Mercer says existing pressures on the workforce will be compounded, while a limit of 40,000 would cause “dramatic headwinds”.

A significant reduction in EU migrant flow into the UK labour pool will force wages to rise, destabilising the workforce and potentially exposing thousands of businesses to increased risk.

While the consensus is that this scenario is unlikely, if the final terms of Brexit require existing EU-born workers to leave the UK, the consequences could be particularly severe.

Reassuring the workforce post Brexit

Nevertheless, until assurances are made over the security of foreign workers’ positions, uncertainty remains and it will be difficult for companies to reassure their staff to stay in the UK.

“We don’t yet know if this will be a short-term or long-term problem. When Brexit becomes a full reality, the supply of labour may be replenished depending on the terms of the agreement,” says Lusher. 

He notes that concerned companies in the food and agri sectors are working together to lobby the government to negotiate a Brexit deal that limits the impact on the workforce.

“For the past few decades, these sectors have been built around the single market, common agricultural policy and the free movement of labour.

“Without these foundations, they are effectively starting again from scratch,” Lusher explains.

There is also concern in the construction and engineering sector that Brexit will exacerbate existing workforce pressures.

“There is already quite a substantial skills shortage in the construction industry,” says Dave Cahill, Senior Partner in the Construction team at JLT Specialty.

“Stopping the free movement of labour from the EU is worrying as more people are needed as it is.”

A transient, expensive workforce

As competition for staff increases, wages are expected to rise, putting pressure on profit margins and driving up the price of goods as well as employee-related insurance coverages.

“This puts contractors in the construction sector in a perilous situation as they may not be able to deliver projects at the price they tendered,” says Cahill.

Higher wages will also make employees more likely to move jobs in search of better pay. And with fewer EU-born replacements able to fill positions, the workforce could become more transient. 

“This presents a risk to contractors as they could end up with a less familiar workforce and therefore a potentially increased health and safety hazard,” Cahill says.

the effect of brexit on retaining talented workforce

Risk management 

In JLT’s experience, companies with stable workforces usually have better personal injury claims experiences owing to superior workplace safety and team culture, as well as staff loyalty, and we advise businesses to focus on risk management as their workforces come under stress.

“There may be a temptation for businesses to see insurance as a backstop in these circumstances; however, a worsening claims experience will impact upon the premium or excesses borne by that company” says Cahill. 

Employing foreign workers is not without risks of its own – employers, for example, must overcome language barriers when training or briefing foreign staff on procedures. However, replacing trained staff with untrained locals may present a much greater safety risk.

“Most of the foreign labour force has been in this country for a long time, so has been highly trained with specific skill sets. If you suddenly have people with no experience doing knife work or operating agricultural equipment, you have to expect that accident rates will rise,” says Lusher.

“The onus is on employers to strictly enforce health and safety policies and train new staff to ensure they are swiftly brought up to a skill level appropriate to the job they are doing,” he says.

Increased reliance on temporary or unskilled workers could also heighten public liability exposures. Cross- contamination and bio-security are major concerns in the food sector, for example.

Liability claims risk

Similarly, a failure to follow protocols and procedures can lead to major public liability claims in the healthcare sector or any business whose goods or services are consumed by the public. 

While risks like these can and should be mitigated at management level, management itself will also be put under pressure by Brexit, as many EU-born employees now occupy senior positions in the UK.

Lusher adds that a weakening of the labour pool could also make businesses less resilient to certain risks. “We are already hearing of poultry businesses shutting down processing plants and farms. 

If a government order comes to kill flocks due to a bird flu outbreak, for example, some may see little point in replenishing their stock if there is stress on their workforce.”

Brexit and changing workorce dynamics

Brexit fears cause productivity challenges

Then there is the issue of reduced productivity. UK car manufacturing, for example, hit record production highs in 2016, but external investment into the sector has already reportedly dropped off because of Brexit fears. It will be difficult to sustain growth with a smaller, less-skilled workforce.

The labour squeeze may force industries such as manufacturing, construction, food and agri processing to accelerate investment in robotics to automate repetitive job functions – which could in turn increase productivity and go some way to plugging a labour gap over the longer term. 

However, these technologies are still in the early stages of adoption in most sectors.

Now is therefore a prudent time for businesses to engage their brokers to assess how the changing workforce environment may affect their risk profiles and insurance coverage, and to implement risk management and staff retention strategies where appropriate.

For more information, contact Sally Swann, Senior Partner on +44 (0)115 935 5350 or email sally_swann@jltgroup.com