Employment Law Services — Employers
Zero hours contracts
Traditionally these contracts have been used in sectors where it is hard to plan staffing levels such as retail, hospitality and leisure and a degree of flexibility is required to cope with peaks and troughs. They are now more widely used in sectors such as social care, education and local councils.
Definition of a zero hours contract
In practice it has come to mean a contract for casual work, where the employer does not guarantee to provide the individual with any work and pays them only for the work actually done. Usually, the worker is expected to be available to work if called on by the employer. Workers are effectively on standby and are generally contacted at the start of each week and told how many hours they will be required to work that week.
The advantages for employers are clear: they do not have to pay staff when there is no work available for them; nor do they have to pay sick pay.
In addition, those working under such contracts are likely to be classed as workers rather than employees, which means that they have fewer statutory employment rights and cannot claim unfair dismissal or statutory redundancy pay, which reduces the employment risks and costs for employers. Although workers accrue paid holiday under the Working Time Regulations, those on zero hours contracts do not usually take holiday and are paid accrued holiday pay on termination instead.
The only potential downsides for an employer are that a worker may not be available to work at short notice and there may be practical problems involved in ensuring staff have adequate training.
- They do not usually receive paid holidays, sick leave or a statutory minimum period of notice[d1] , although they should receive accrued holiday pay on termination.
- They may not be entitled to bonuses.
- They do not benefit from paid family leave, such as maternity leave or paternity leave.
- They are paid only for the hours they work and often do not know in advance how much they will earn, which can make it difficult to manage their finances and plan for the future.
- They may find it hard to take out a mortgage, loan or credit card.
- It may be difficult to claim benefits or tax credits as they cannot specify how many hours they will be working.
- It may be a struggle to arrange childcare at short notice.
- Some zero hours contracts are “exclusive”, which means that individuals cannot work for another employer in order to increase their wages.
Some individuals, such as students, those with dependent relatives and the semi-retired, like the flexibility of a zero hours contract. They can combine working with other activities such as studying, caring or travel and have the option to refuse work on occasion.
However, there are many disadvantages for workers:
Zero hours contracts are potentially subject to abuse by employers, but any attempt to limit their use or ban them completely will cause problems for employers who use them legitimately. Workers on zero hours contracts already have some protection under the law; if they regularly work a large number of hours, a tribunal can decide that they are permanent employees and have the full range of employment rights. If they work part-time, they have the right not to be treated less favourably than comparable full-time employees.
- Part-time contracts, which could include a minimal number of hours;
- A bank of individuals to call on for work at short notice;
- A short fixed-term or temporary contracts; or
- Agency workers.
Some large retailers have stopped using zero hours contracts and have started using fixed hours contracts instead, which set the minimum hours of work per week. There are other alternatives if an employer needs some flexibility, without using zero hours contracts. They include:
All of these have their own advantages and disadvantages. For example, if an employer uses agency workers, it will have to comply with the Agency Workers Regulations, which can be costly. The appropriate solution will depend on the circumstances and, in particular, the length of time the worker is likely to be needed.