Business leaders have welcomed the Government’s plans for a major overhaul of workers’ rights.

Leading business group the CBI said ministers deserved credit for engaging with employers and unions on the Employment Rights Bill, which includes improvements to parental leave and sick pay as well as banning exploitative zero hours contracts.

CBI chief executive Rain Newton-Smith said: “Politicians and businesses have a shared goal in wanting to raise living standards through higher levels of growth underpinned by investment and increased productivity.

“The Government deserves credit for its willingness to engage with businesses and unions on how to make a success of the Plan to Make Work Pay.

“It’s that willingness to work together that can ensure we find the right landing zone and improve living standards by avoiding the unintended consequences that businesses have warned against.

“With a number of critical details still subject to consultation, it’s important the Government builds on the good engagement to date to ensure we get the detail right on this decisive piece of legislation.”

John Dickie, chief executive of business group BusinessLDN, said: “Good businesses already have good working standards. That is why we support Labour’s objectives to increase living standards, make work pay and drive up productivity through regulation to improve employer practice across the economy.

“The Government’s commitment to consult business on the draft Bill is the right starting point and we look forward to engaging on the detail of these reforms to make sure they work for employees, employers and the economy.”

Ann Francke, chief executive of the Chartered Management Institute, said: “For many modern, forward-thinking employers the changes proposed in the Employment Rights Bill won’t create much of a challenge, as the Government is in many cases just formalising practices that smart employers already follow.

“Policies that support flexible working, stronger family-friendly rights, and a focus on closing the gender pay gap are much needed if the UK wants to create workplaces where all staff can thrive.

“Workers want job security, and UK managers have told us very clearly that better working conditions lead to improved productivity, easier recruitment, and higher staff retention.”

The only strong business criticism came from the Federation of Small Businesses, which described the legislation as a “rushed job, clumsy, chaotic and poorly planned.”

Alex Hall-Chen, principal policy adviser for employment at the Institute of Directors, said: “Our research shows that there is appetite for some employment law reform within the business community.

“We welcome signs that government has taken on board concerns from business regarding the importance of probationary periods, as well as its commitment to consult meaningfully with business on the detail of the policies.

“However, we remain concerned that these proposals are using a sledgehammer to crack a nut and will ultimately make it both riskier and more costly for businesses to employ staff at a time when business confidence is at its lowest point in two years.”