A Guide to Zero-Hours Contracts in the UK: Understanding the Pros and Cons

Zero-hours contracts are an agreement about work and, as you would expect, they contain details of:

• Rate of pay (at least National Minimum Wage)

• Holiday pay 

• Place of work

• Rest breaks

• Sick pay and other statutory entitlements

• How the contract will end (on a set date, on completion of task etc.)

The main difference between this and other types of employment contract is there is no expectation that work will be available, or that it will be accepted when offered.

As the business experiences unexpected demand, they may extend an offer of work to someone they know has the right skills. But that individual doesn’t have to be available, and they don’t have to accept the work. They may decline this time because they have other commitments, yet accept another assignment from the same employer because it’s more convenient.

The nature of zero-hours contracts might seem like they have limited benefits to businesses. After all, what’s the point of offering work to someone who doesn’t take it? But there are various reasons zero-hours contracts can work for both parties.

Flexibility for both employers and employees

Employers can look at demand over the next few months and identify any gaps which need filling. Having a bank of people who are on a zero hour contract allows them to bring in experienced staff without needing to keep them on payroll all year round. It’s a great way of building relationships with individuals whose lives need more flexibility, but who want to work with you when the opportunity is there.

Equally, for employees, you aren’t committed to a set timescale for work. You may have a side hustle, caring responsibilities, or be studying for a degree or professional qualification. All those activities take time which don’t often fit neatly around a 9 to 5 job.

Zero-hours contracts affords employees the flexibility to pick up work when it suits them and, as you already know the terms of pay, holiday pay etc., it’s a simple yes or no to the hours available.

Cost-effectiveness for businesses

For UK employers, zero-hours contracts prevent you from carrying unnecessary costs.

Resource management tools help identify upcoming requirements and allow you to contact known employees to fill the gaps, saving the hassle and expense of recruitment campaigns or agency fees.

There’s also limited administration required as you use someone for a second, third or tenth time. Their details are already held in your HR Software, so it’s just about adding their latest hours and allowing your payroll system to do the rest.

Ideal for sectors with fluctuating demands

When you work in a seasonal business, zero-hours contracts can be invaluable. As a hotel, you don’t need a full complement of staff year-round, but during Christmas and the summer months you may need an extra pair of hands. The same is true in retail and logistics. Sale periods typically result in increased orders, which means more picking, packing, deliveries and returns – all of which need employees to process them.

Having the ability to bring people into the business quickly is an obvious benefit in these situations. Once the peak is over, you can return to normal staffing levels and, on zero-hours contracts, there is no notice period to pay. 

While there are some circumstances where zero-hours contracts work well, they do have a few disadvantages. It’s worth understanding these before deciding whether they will work well for you. 

Lack of job security for employees

Zero-hours contracts provide flexibility but not security. Work can disappear at any time and may not come back for several weeks or months, so employees may go looking for a more permanent arrangement. Meanwhile, you still have a requirement, with no-one to do the work.

You can look to help people by providing advice and guidance to  support employee financial wellbeing, but ad hoc contracts probably won’t feed their families on a regular basis, making them less desirable for some than fixed term or permanent options.

Uncertainty around working hours

This is an issue for employers and employees. Employees don’t know when they’ll be needed. Employers can’t plan for them being available. The lack of obligation on both parts, coupled with the often immediate nature of demand, can leave you stuck.

Employees make other commitments which can be hard to change at the last minute, even if they want the work. And employers can find themselves on a desperate search for agency staff when their chosen person can’t come in.

Potential for exploitation if not managed ethically

Historically, zero-hours contracts have had a bad reputation. Some employers have used them as a way to avoid paying people statutory payments, like redundancy pay. And while employment law changes have been made to ensure individuals on zero-hours contracts receive entitlements to holiday pay, sick pay, and parental leave etc., there are still risks.

Employers must approach people on a zero hour contract with the same support and respect as they do permanent staff. Regardless of their contract status, employees want to feel valued within an organisation and your company reputation relies on it. Otherwise you may find those on zero-hours contracts are the first to start quiet quitting at your expense, with others following closely behind.

Aside from the ethical considerations, you also need to be aware of any implications of zero-hours contract employment laws for your business. 

Employees versus workers

Zero-hours contracts can cause confusion on employee status. Are they workers, are they employees, and what difference does it make?

One of the key aspects of distinction of employment status relates to “mutuality of obligation”, yet the definition of a zero-hours contract means you can offer work and the individual doesn’t need to accept it. When they do, however, the employer typically:

• Defines the work and provides all the tools for it to be done

• Makes the contract with that person specifically (they can’t send a substitute)

• Controls how and where the work needs to be done

This can result in the individual being an employee and affords them certain rights, but you should review the particular details of your agreement with a legal advisor to be sure.

Legal rights with a zero-hours contract

• No matter whether someone is classed as a worker or employee under a zero-hours contract, employment law sets out the legal rights you must meet:
• National Minimum Wage or National Living Wage (depending on age): people must be paid for the hours they work
• Paid holiday: even when they only work a few hours a year, people accrue pro-rata holiday pay for zero-hours contracts
• Rest breaks: the Working Time Regulations apply as they do for all workers, allowing for minimum rest breaks throughout the day
• Protection from discrimination: employers have an obligation to protect all their employees or workers against discrimination
• Receiving payslips: this is to prevent unscrupulous employers from avoiding their obligations around tax, national insurance and any other relevant payments

Changes in the legislation

The Labour government in the UK has announced proposals to make further changes to zero-hours contracts employment laws. In particular, it wants to clamp down on “exploitative” contracts and provide greater protections for those employed under them.

The Employment Rights Bill would give employees the right to a contract which reflects their regular hours, preventing businesses from keeping people on zero-hours contracts when circumstances have become more predictable. 

It also proposes employers would need to provide “reasonable notice” when there’s a need to change or cancel a shift and compensation may also apply. As a result, it’s possible they will introduce a minimum notice period for zero-hours contracts.

Whatever changes come in, they will impact all those employers currently using zero-hours contracts, although the emphasis is obviously on businesses who are “taking advantage”

In some cases, zero-hours contracts can be incredibly useful. Here are three examples of where and how they’re used successfully to meet the needs of both employers and employees:

National Health Service (NHS): Bank workers

The NHS works with a number of partner organisations and trusts who provide bank workers to ensure patient care is maintained. When a nurse calls in sick, for example, the NHS may put a request out for someone to cover that person’s shift until they return to work. The people they bring in are typically on a zero-hours contract. 

These workers may be:

• studying for advanced nursing qualifications

• providing full time care for family

• retired from permanent employment

They all have invaluable skills to offer in the arena of patient care, they just aren’t able to commit to a permanent role at this time. Using zero-hours contracts allows them to come in for shifts which are convenient, and continue to pursue a vocation they love.

GSF Car Parts: Retail delivery drivers

You might not have used them directly, but your vehicle is probably full of GSF parts. They provide everything from lightbulbs and oil, through to tools and garage equipment to local garages and national retail chains like Halfords, KwikFit and Green Flag. 

They deliver parts up and down the country, and sometimes they have people who are on holiday or off sick. When this happens, GSF use employees on zero-hours contracts to cover their needs. They recognise people still need their vehicles fixed, so employing people on zero-hours contracts allows them to bring in additional cover at short notice. 

For employees, the adverts they place are clear. Delivery drivers, even those on zero-hours, are important to their business and must demonstrate a commitment to customer service. They must also be able to travel within a 40 mile radius of the branch. By setting out these expectations at the start, GSF are being transparent, helping them to recruit the right people for the job. 

Hospitality businesses: Seasonal events staff

Pubs, hotels, and wedding venues nationwide use zero-hours contracts on a regular basis. They need bar staff, events management teams, servers, cleaners and many other roles, just not all the time. When a venue hosts an event, the number of employees it needs increases significantly, but it’s short lived. 

A wedding might need extra staff for a couple of days as guests arrive, the event takes place, and everyone departs back home. Pubs might host charity nights, or fundraising events. And hotels have an influx during summer and Christmas.

All these businesses successfully use zero-hours contracts to increase employee numbers to meet a temporary need. Experienced staff might have contracts with a number of different venues or hotels, so they can go where the work is required. And when you get a reputation for excellent customer service, more employers want you in reserve to cover their events. 

So you can see that zero-hours contracts can be hugely beneficial to employers and employees, but it’s important you also have the systems in place to keep records up to date and contracts compliant.

Zero-hours contracts offer real flexibility and can be a useful way of managing demand without increasing ongoing costs.

They provide opportunities for businesses to meet temporary requirements, whilst giving employees flexibility to explore other options. But that’s also the risk – people can say no.

The employees you want may not be available when you need them, they may decline the work on offer, and they’re under no obligation to take it. So, although they have the skills you need, and may understand the processes of the business, you could still be stuck.

It doesn’t make them a bad idea. It just means you should weigh up the pros and cons of zero-hours contracts for your business before using them.