Among different work contracts, there is one that has generated media-worthy controversy and confusion within the UK: zero-hour contracts. Having grown in popularity over the last two decades, such contracts are now prevalent across many industries.
In this article, we will answer and discuss common zero-hour contract questions such as: what zero-hour contracts actually are, what rules employers must abide by, and the pros and cons of this type of employment.
What is a zero-hour contract?
A zero-hour contract is one where an employer does not guarantee an employee minimum working hours. Likewise, there is no obligation for an employee to accept offered work, should it arise.
Therefore, zero-hour contracts have been enthusiastically utilized by multiple demographics e.g. students looking for casual work without serious commitment or partially retired workers looking for extra pocket money.
Furthermore, they are becoming increasingly common, especially within the hospitality industry and similar ones to it, as can be seen by zero-hour contracts employment statistics.
Before assessing zero-hour contract advantages and disadvantages, we should first look at the legislation regarding this form of contract.
Zero-hour contract rules: Do zero-hour contracts count as employment?
As mentioned above, zero-hour contracts are legal and therefore working parties are entitled to all statutory employment rights. Having worked this out, we should now investigate what zero-hour contracts employee rights bind employers.
It is important to note that those working under a zero-hour contract are highly likely to be classified as ‘workers’, not employees – these two categories carry different rights. In this article, we will assume the individual is a worker.
Please note that if you are an employee, this will be stipulated in your employment contract, you will be entitled to more rights. These can be further investigated here.
Relevant employment rights for workers include:
- Receiving the National Minimum wage
- Protection against unlawful wage deductions
- Statutory length rest breaks
- Working fewer than 48 hours a week (this can be opted out of)
- Protection from discrimination
- Statutory minimum paid holiday
- Standard health and safety checks
However, rights such as protection against unfair dismissal or minimum notice periods are not applicable to workers.
National Minimum Wage
The National Minimum Wage or National Living Wage (if you are over 25) applies to all types of employment, including zero-hour contracts. This means no matter the irregularities of hours worked, it is illegal to pay less than the government-issued National Minimum or Living Wages.
These wages differ depending on your age (when you are older than 18, 21, or 25) and are as follows:
Be aware that these wages may change annually and so, whenever you are reading this, check what the most recent National Minimum or Living Wage rates are.
Holiday Pay and Entitlement
Zero-contract hour workers are entitled to standard statutory leave, which is 5.6 weeks’ paid holiday a year according to the Working Time Regulations 1998. This is limited to 28 days.
Due to irregular working patterns, many wonder how to calculate holiday pay for zero-hour contracts. Leave is determined by finding the average pay over the preceding 52 weeks (or the number of weeks worked and were paid for) of employment. A week is defined as running from Sunday to Saturday and the entitled weekly holiday pay should be included within an average week’s pay.
As there are often weeks where zero-hour contract workers are not being paid, it is possible for the employer to go back further than 52 weeks to calculate the average pay. However, as an employer, you cannot go further back than 104 weeks.
If this is still confusing, please consider using the free zero-hour contract holiday calculator.
Remember that the reference period was extended from 12 weeks to the current 52 weeks on the 6th April 2020. If you require help before this date, please use a 12 week-reference period rather than 52 weeks.
These rules operate regardless of whether you are paid weekly or monthly.
It is also worth remembering that as a worker, you can also:
- Request sick leave at the same time
- Accrue holiday pay whilst sick or during maternity, paternity, and adoption leave (if these rights are applicable to you – remember, being a worker, this is up to the employer!)
If you have worked for more than 6 hours in a day, you are entitled to a 20-minute (this is only the minimum) unpaid break. This break cannot take place at the very beginning or the very end of the day and should be away from the workstation.
Furthermore, if you are working consecutive days, there must be a minimum of 11 hours rest between the end of the first shift and the beginning of the next.
You are also entitled to weekly rest breaks; this constitutes 24 hours of rest within a 7-day period or 48 hours within a fortnight.
Remember depending on your employment contract, you may be entitled to more than the legally mandated number of rest breaks so make sure you check.
Employment contracts Breaks
This will occur if you have not worked for a full calendar week. In this scenario, you can claim any holiday entitlement you have accrued but not yet used and/or any outstanding wages.
Exclusivity clauses prohibit employees from looking for and accepting work from other employers. These were banned by the Small Business, Enterprise, and Employment Act 2015.
That means that as an individual worker, you can look for employment elsewhere if you wish to.
If your employee does include an exclusivity clause or attempts to sneakily slip it into other clauses e.g. you require their permission before searching – ignore it! It is not a legally binding clause.
Zero-hour contracts benefits
Over time there has been a steady increase in the number of zero-hour contracts due to its many benefits to both the employer and the employee.
Zero-hour contracts benefits for employees
The benefits that workers receive helps to explain why an increase can be seen.
- Increased flexibility – you are entitled to turn down shifts that you would rather not do or do not have time for.
- Lack of restrictions – you are able to look for other employment at the same time, in different industries if you choose, providing more experience or a stepping-stone into a new sector.
- Chance for stability – if you perform well, some employers offer the opportunity for permanent jobs.
- Improve your CV – you can gain a wide range of new experiences and skills instead of leaving a gap in your working history.
Zero-hour contracts benefits for employers
Of course, employing zero-hour contract workers also benefits the employer.
- Increased flexibility (again!) – depending on your business, the work may fluctuate, making it difficult to hire permanent staff. Using zero-hour contracts will allow you the flexibility to meet staffing requirements.
- Experimentation – as a new business you may still be discovering how big a workforce you need; using zero-hour contracts for a temporary basis is a great way to figure this out.
- Makes good business sense – not only do you not have to pay workers if they are not working (saving money), but you also do not need to worry about redundancy pay, maternity pay etc.
- Cheaper – zero-hour contracts are more cost-effective than agency workers, which is the main alternative.
Zero-hour Contract Disadvantages
Given the amount of criticism in the media and by groups like the TUC, it is unsurprising that zero-hour contracts also have severe drawbacks.
Unfortunately, many of the zero-hour contracts advantages for employees can also be viewed as negatives.
- Uncertain income – whilst flexibility can be good if you need to organize work around your day, if it is your only source of income this flexibility can become dangerous – financial help may be available for those who need it.
- Fewer benefits – as mentioned above, as a worker, you are not entitled to some employment rights e.g. maternity pay. This could leave you open to exploitation as you may not receive work or an income during these periods.
- Restrictive – as there is often a short time frame between being told you are needed and the beginning of the shift, you may be constantly waiting for a job and disregarding the rest of your life.
- Exploitation – although there is no legal obligation to work, there can be huge pressure to accept. There have been cases where refusing shifts have resulted in no further work being offered or threats to end the contract.
- Unpredictability – given workers have the legal right to decline job offers or can cancel if needed, it can be difficult to ensure enough workers arrive.
- Constant monitoring – this is needed to ensure that zero-hour contracts do not become fixed term.
- Constant monitoring (part 2) – scheduling too many workers can result in a smaller profit margin but calculating the exact number of workers needed is difficult and requires continuous observation.
- Quality of work – zero-hour contract workers typically have inconsistent training and less loyalty to your business, so the quality of work can vary.
- Lack of exclusivity – since exclusivity clauses are not enforceable, zero-hour contract workers may also be under the employ of your competitors.
Knowing all the zero-hour contract advantages and disadvantages, you should assess whether the benefits outweigh the burdens. If they do, great! There is one more obstacle you will need to cross before beginning though.
Zero-hour Contract Exploitation
It is important to remember that you cannot use zero-hour contracts as a substitute for proper business planning. It is not justifiable to utilize these contracts to avoid employment responsibilities and the provision of rights excluded from zero-hours contract workers.
If the individual will be working regular hours (e.g. a 9-5 every day) for a continuous length of time, zero-hour contracts should not be used.
As an employer, the likelihood of using zero-hour contracts for the core of your business is low. To avoid being taken to an employment tribunal, you must remember that zero-hour contracts should not be exploited and only used when necessary.
This has already been briefly mentioned but to recap, zero-hour contracts are primarily useful for:
- New ideas – this includes services and businesses in order to test out provisional ideas and build up a customer base due to unpredictable peaks and ad hoc decisions.
- Seasonal work – demand is predictably higher in certain industries at a certain time (e.g. fruit picking in the summer), to compensate for this, zero-contract workers may be necessary.
- Special events – one-off events at venues may not be equipped for such special occasions and may require the additional help of zero-contract hour workers, who have already been trained.
- Unexpected absences – this could occur if a permanent or part-time member of staff is unanticipatedly ill and experienced outside help is needed at short notice.
This is not an exhaustive list but is the most common situation. If your scenario lies outside these examples, consider the appropriateness of hiring zero-hour contract workers to avoid exploiting the law.
Remember to monitor regular zero-hour contract workers to ensure that they should not be offered a part-time or fixed-term contract instead.
Key Information Needed Within a Zero-Hour Contract
So, you have decided that zero-hour contracts fit your business and want to proceed, what next?
The zero-hour contract will need to be clear and transparent; it is imperative that both parties fully understand their rights and their effects under the contract.
As an employer, it is important to state whether the individual is an employee or a worker, probably the latter, and the relevant rights that attach to the employment. The process of receiving work should be explained as well as the procedure regarding the termination of the contract.
As with all employment contracts, contractual terms (which are legally binding) must be made clear to workers. These could be verbally agreed, written in a contract, by way of an offer letter, implied, or agreed after negotiation.
You must also provide prospective workers with a written statement of employment particulars. This contains the main conditions of employment and is split into two parts: the principle statement and wider conditions. The former must be given within the first day of employment and the latter within the first two months.
This statement should contain information on:
- The employer
- The worker (name, job title with a description, start time, length of job)
- Working rates and hours
- Employee rights (location, holiday entitlement)
- If applicable: pension scheme, sick pay, paid leave, notice periods
It is important to include all this information to avoid a grievance being failed or a case at the employment tribunal being raises, which could result in 4 weeks’ worth of pay as compensation.
Given the variation in zero-hour contracts, it is difficult to provide a template. However, example zero-hour contract samples can be found here. Please be aware that these may not be completely accurate and legal advice should be sought.
Before employment begins, you (the employer) must be aware of employment law regarding zero-hour contracts and the responsibilities and rules you must adhere to – these are mostly written above.
Job offers should be given with as much forewarning as possible. This is because many zero-hour contract workers have other ongoing obligations and responsibilities that they arrange workaround. Those under zero-hour contracts are normally students or partially retired individuals, therefore, as an employer, it is important to keep this in mind.
Some companies have experimented with spreadsheets detailing available time slots, where workers can personally sign up to preferred shifts. These rotas become available months ahead of the shift itself, with alterations being added in when appropriate. These modifications send an alert to employees, who then have the option of signing onto extra shifts or reorganizing ones they have previously applied for.
Similar rules apply to canceling shifts. There should be policy dictating circumstances where cancellations may occur and what the consequences are for the individual to mitigate any expenses, or inconveniences, they incurred.
If, however, you have decided that zero-hour contracts are not for you or are not applicable, there are many alternatives available.
- Employing individuals for a fixed term or part-time contract if they have regular working hours
- Offering overtime to existing employees to deal with short-term increases of workload
- Using agencies to hire staff at short notice for temporary work
- Changing annualized contracts and hours to align with busy seasons across the year
If you are an employee who fears they are being exploited via zero-hour contracts, set up an informal meeting with your employer. Discuss the problems you are facing, showing evidence if possible, and keep a record of what was said.
If this is unlikely to work (with bigger cases e.g. discrimination) or has been attempted with no resolve, you should raise a formal grievance. This could result in a claim being raised at an employment tribunal.
The advice can be found on acas.org.uk.