Zero hours contracts: is time up?

Zero hours contracts: is time up?

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Author: Karen Fletcher

Growing public concern over zero hours contracts has led the Government to review their use. What does this mean for companies which employ staff on such contracts?

What is a "zero hours" contract?

The term "zero hours" is not a term of art but generally indicates a contract for casual work under which the employer is not obliged to provide a minimum (or any) amount of work, and hence pay, to the worker. Sometimes contracts impose an obligation on workers to accept all work offered by the employer, in others they are given more freedom to turn work down. In essence zero hours contracts allow employers to put workers 'on call', ensuring they are available for work when required but with no obligation to actually offer work.

The advantages

Zero hours contracts are very popular and their use has even spread to the public sector, including the NHS. According to the Office for National Statistics, the number of zero-hours workers has risen from 131,000 to 200,000 since 2007. It was recently revealed that 90% of Sports Direct workers are employed on zero hours contracts.

One of the great advantages for employers is the flexibility zero hours contracts offer, particularly in the current, uncertain economic climate. Where work levels are fluctuating, these contracts can be a significantly cheaper option than employing full time employees who must be paid regardless of how productive they are. Zero hours contracts are particularly useful in sectors where there may be seasonal fluctuations such as retail and healthcare. During busy periods, zero hours workers can help take the pressure off permanent staff, helping to maintain morale.

But it is not all one-way traffic; zero hours contracts can be beneficial for workers who want occasional earnings on a flexible basis, for example, those who are studying or part-retired.

So what's the problem?

With their increasing popularity, the media and other organisations have focused in on the "one-sided" nature of zero hours contracts and the fear, expressed by Vince Cable that, "vulnerable workers at the margins of the labour market" may suffer exploitation as a result.

The main issue is that zero hours contracts do not guarantee a certain number of hours so workers do not know how much, if anything, they will get paid and this creates financial stress for individuals. Citizens Advice has also highlighted the difficulties which fluctuating pay can create when workers are claiming benefits. In addition, the short-term notice and lack of any regular work can disrupt family life and make it difficult to organise child care.

Often individuals are only offered roles as "workers" rather than "employees". Unlike employees under a contract of employment, workers have no rights not to be unfairly dismissed, no maternity rights and no redundancy rights and this just adds to the concerns about exploitation of the vulnerable.

Government proposals

The negative publicity surrounding zero hours contracts has sparked action from the Government. The Business Secretary, Vince Cable has asked his officials to review the growing use of zero hours contracts in both the private and public sectors. He said, "While it's important our workforce remains flexible, it is equally important that it is treated fairly. This is why I have asked my officials to undertake some work to better understand how this type of contract is working in practice today."

Campaigners want part-time contracts to replace zero hours contracts, allowing workers certainty in what hours they will work. However, with the increasing popularity of zero hours contracts, it seems unlikely the Government will completely eradicate them, but instead will seek to regulate and control their use in the future.

Top Tips

Whilst waiting for the Government's review, employers face the risk of damaging their reputation if they are perceived to be misusing zero hours contracts. The following tips may reduce such risk.

  • If staff are not genuinely required on an "ad hoc" basis and the relationship is in reality more akin to an employment relationship (e.g. if there is a very a regular pattern of work on an ongoing basis) then engage on that basis rather than as a zero hours worker.
  • Do not create a bigger pool of zero hours workers than is necessary. In particular, don't use zero hours workers to the detriment of core staff who may be able to cover surges in activity through voluntary overtime. This will also help ensure any zero hours workers who are engaged work more frequently, generating loyalty.
  • Make sure the contracts go no further than is commercially necessary. For example, consider whether it is strictly necessary that the employees are always available for work or can a degree of flexibility for the individual be built into the contract e.g. that they may refuse work offered so many times a month/year.
  • Make sure the contract is clear and transparent and the individual truly understands what they are signing up to in order to avoid any future complaints. Job titles such as "casual staff" or "bank worker" can be useful to help differentiate these workers from your permanent staff.
  • If the workers must be on "standby" at or near the place of work, this time will fall within the National Minimum Wage legislation and the worker will be entitled to be paid the National Minimum Wage for this time, even if they are not working.
  • Similarly, if the worker is required to be on-call at the place of work such time is likely to count as 'working time' under the Working Time Regulations. In this situation consider whether an opt-out of the 48 hour limit on a week's work is necessary.
  • Rules on working time apply equally to casual workers. Employers should keep accurate records of the hours worked by each worker. This can help accurately calculate a worker's holiday entitlement and necessary breaks.
  • Create a fair system of how work is offered to zero hours workers. Avoid practices of blacklisting if work has been refused once by a worker, or they have taken time off sick. Such workers are protected by discrimination legislation and a company could leave itself open to a claim if they ceased to offer work to a pregnant or disabled worker.