The government’s plans to upgrade workers’ rights will cost businesses up to £5bn a year to implement according to analysis by the government.

The new measures will have a serious impact on small businesses, responsible for employing 13 million workers, according to the report.

However, the £5bn represented a “modest” amount, less than 1.5% of the total amount spent by businesses on employing staff, the report said.

Moreover, the “wellbeing” benefits of the measures, which include challenging the use of zero hours contracts and boosting sick pay, would amount to £3bn, it found.

The economic assessment report was prepared for MPs ahead of the second reading of the Employment Rights Bill on Monday.

The government says the legislation represents the biggest upgrade to workers’ rights in a generation.

It would guarantee new rights for workers from the first day of their employment including: sick pay, protection from unfair dismissal, parental and bereavement leave.

It also proposes banning what it calls “exploitative” zero hour contracts and strengthening trade union rights.

However, the report warns that the additional costs could lead to employers cutting their workforces, which could in turn ‘’weigh’’ on economic growth, the government’s stated policy priority.