A guide to Zero Hours Contracts

By Anthony Wolny | 7th September 2018 | 12 min read

As reports of insecure working hours and employees enduring precarious working situations continue to increase, the negative focus on zero hours contracts shows little sign of shifting. The Guardian reports that the number of people in the UK employed on zero hours contracts increased by as much as 100,000 in 2017, and figures from the Office for National Statistics show that 32 percent of people on zero hours contracts state that they would like more hours – this compares to just 9 percent of people in other types of employment.

However, it should be noted that there are now many employee/employer relationship agreements that differ from the traditional nine to five. Many argue that new working contract types, such as zero hours, have positively contributed to the decline in unemployment rates, which have returned to pre-recession levels.

However, others claim that their very existence means employees are trapped in part-time, temporary employment through a lack of potential full-time, permanent jobs.

What are zero hours contracts?

It should be noted that the term ‘zero hours contract’ is not a recognised legal term. In the absence of an official legal definition, a rough understanding of the term would be as follows:

  • The employer is not obliged to provide any minimum working hours
  • The worker is not obliged to accept all working hours offered

The employee’s contract will state exactly what level of pay the individual will receive if they do work, and what will happen when they turn down any work that has been offered by the employer.

When and why were they introduced?

Zero hours contracts have been used for years under a number of different guises, but have gained prevalence over the last twenty years. Under the National Minimum Wage Act 1998, UK workers operating under a zero hours contract on stand-by time, on-call time, and downtime must be paid the national minimum wage for hours worked. However, prior to the introduction of the Working Time Regulations 1998, and the National Minimum Wage Regulations in 1999, zero hours contracts were sometimes used to ‘clock-off’ staff during quiet periods, whilst retaining them on site so they could be returned to paid work should the need arise.

Traditionally, they were used to employ seasonal, agricultural, and hospitality workers, to whom permanent hours might not be available.

Zero hours contracts – key points:

Understanding these type of employment contracts can be confusing, but there are some key facts to remember that should help to make the area a little clearer:

  • Zero hours contracts normally mean that there is no obligation for employers to offer work, or for the workers involved to accept it.
  • Most zero hours contracts will provide staff with ‘worker’ employment status
  • Workers on this type of contract have the same employment rights as regular workers
  • Protection is provided to zero hours workers from any company exclusivity clause

Do they affect employment status?

In most cases, zero hours contracts mean that an employer ‘recruits’ a worker. However, the way in which the relationship with that worker develops may enhance the employment status to that of an ‘employee.’

Clarity of employment status is one of the more challenging aspects of managing zero hours contracts. The three main types are employee, worker and self-employed. Individuals engaged on zero hours contracts may be either employees or workers in terms of their legal rights. Identifying which one depends on what the employee’s contract says, and how the relationship with their employer works. In most cases, those on zero hours contracts will be ‘workers,’ as there will be no mutual obligations on either side.

You should be clear about which category zero hours workers belong to, and consider the rights and conditions that they may be entitled to accordingly.

When can they be used?

Zero hours contracts can be used to essentially provide a flexible workforce to meet a temporary or changing need for staff. According to research from theCIPD, the most common reason employers use zero hours contracts is to provide them with the flexibility to manage fluctuations in business demand. However, the same research also found that an equal number of employers stated that they used the contracts to provide flexibility to individuals.

Examples of when to consider using zero hours contracts include:

  • For unexpected or last-minute events (e.g. a restaurant needing extra staff for an event)
  • For temporary staff shortages (e.g. an office requires a temporary specialist worker to cover an absence)
  • For on-call or bank work (e.g. a firm has a period of heightened work, requiring extra resource temporarily)

Are there any alternatives?

You should carefully consider whether offering zero hours contracts is the right choice for your business, depending on the nature of the work and your specific circumstances. You could also consider:

  • Offering overtime to permanent staff to ensure that existing knowhow is available to cope with business demand fluctuation
  • Recruiting a part-time employee, or alternatively someone on a fixed term contract if regular hours are likely to be required
  • Offering annualised hours contracts if peaks in demand can be anticipated across a working year
  • Using agency staff as a quicker way to employ any staff needed temporarily or at short notice

What rights do those on zero hours contracts have?

Anyone employed on a zero hours contract is entitled to statutory employment rights – there are no exceptions. The rights an individual is entitled to will depend on whether their status is as an ‘employee’ or a ‘worker.’ Regardless of that status, the employee will be entitled to at least the National Minimum Wage, paid annual leave, appropriate rest breaks, and protection from discrimination.

Depending on the dynamics of the individual contract, a zero hours agreement could mean that the contract itself only exists when the work is provided. When this is the case, a full calendar week without work (e.g. Sunday to Sunday) is required to bring about a break in employment. When a break occurs, an employer will have responsibilities, such as the requirement to pay the worker for any accrued and untaken holiday pay.

Equally, if employment is continuous, the employee will begin to accrue employment rights over time. For example, after the first year of work, workers will not need to accrue any annual leave prior to actually taking it.

Is there any recent legislation to be aware of?

On the 26th May 2015, new regulations surrounding zero hours contracts were introduced by the UK government. The purpose of this law was to prevent employers from enforcing exclusivity clauses in any zero hours contracts.

There have also been recent rumblings of the introduction of further legislation that could ban the contracts altogether, as well as increasing workers’ rights across the board, but these have yet to be introduced.

What is an Exclusivity Clause?

The exclusivity terms in the Zero Hours Regulations 2015 state that it will automatically be deemed unfair if a worker is dismissed for breaching a contractual clause that aims to stop them for working for another employer. It also makes it unlawful for a worker to suffer any detrimental treatment.

As an employer, you must allow your employee to take work elsewhere to earn an income if you cannot offer them sufficient hours on a regular basis.

Are zero hours contracts right for my business?

This depends entirely on your individual business situation and the working requirements that you currently have. However, you may decide that they provide the best solution for your business if you need to have an easily accessible pool of staff available to assist when the need arises, don’t want to have an ongoing requirement to provide guaranteed levels of work, and would rather not have to pay agency fees for temporary workers.

Top tips for small businesses managing zero hours contracts:

If you decide that there is a basis on which to employ workers on zero hours contracts, there are several recommended areas to consider:

  • You should only use zero hours contracts where the flexibility of the arrangement suits both your business and the employee in question
  • Make sure that you have fully considered whether zero hours working is the right way forward, and that you have thought about all viable alternatives
  • Ensure that all workers employed on zero hours contracts have a full, written copy of their working terms and conditions
  • Make clear the employment status of all zero hours staff, and review the contract type and its organisational effectiveness at least once a year
  • Provide training and guidance for all line managers – ensure that they manage zero hours workers in line with their employment status
  • Raise awareness across your organisation that anyone on zero hours contracts have a legal right to work for another employer if you cannot provide them with work
  • Provide zero hours contracts with reasonable compensation if any pre-arranged work is cancelled with little or no notice
  • Try to implement comparable rates of pay for people doing the same job, regardless of any differences in their employment situation