Zero hour contracts have sparked debates and discussions on the ethics and implications of such arrangements. In recent years, these contracts have gained notoriety for their flexibility and criticism for their potential exploitation of workers.
In this article, we will cover the intricacies of 0 hour contracts, examining the pros and cons of zero hour contracts, their impact on workers, employee legal rights and employer responsibilities.
Table of Contents
- What is a Zero Hour Contract?
- Benefits of Zero Hour Contracts
- Cons of 0 Hour Contracts
- Employment Rights for Zero Hours Staff
- 0 Hour Contract Notice Period
- Statutory Sick Pay (SSP) for Zero-Hour Contract
- How to Calculate Zero Hour Contract Holiday Pay
- Zero-hour Contracts and Furlough
- Zero-hour Contract and Redundancy Pay
What is a Zero Hour Contract?
Although there is no official legal definition according to UK law, the CIPD defines a zero-hour contract as ‘an agreement between two parties that one may be asked to perform work for another but there is no minimum set contracted hours‘. The contract states what pay the individual gets if they do work and the consequences of turning down work when offered.
You might consider using this contract if you regularly hire seasonal and temporary workers. This will usually apply if you work in retail and hospitality. Zero-hour positions tend to be part-time by nature. Examples of industries that rely on zero-hour contracts include casual workers (such as students), part-time care workers, substitute teachers, and individuals working for gig economies (such as delivery drivers and chauffeurs).
Contracts of this type have become increasingly popular in the UK in recent years. This is largely due to an increase in flexible and seasonal work. In fact, in 2021 alone there were around 860 thousand people on 0 hours contracts in the United Kingdom. Plus, there has been a net increase of over 632 thousand people on zero-hour contracts since 2000.
As there is currently no legal definition for a zero-hour contract, it is up to the employer to ensure that the worker’s employment status is clear and they are aware of their statutory rights and obligations. This includes whether or not they have the right to SSP, holiday and redundancy. The key is finding the right balance that respects your zero-hour workers’ rights while providing your company the flexibility it needs.
Benefits of Zero Hour Contracts
There are a few key pros for zero hour workers and their employers, including the following:
- Flexibility for Employers: One of the primary advantages of 0 hour contracts is the flexibility they offer to employers. Businesses, especially those in sectors with variable workloads, can easily adjust their workforce based on demand. This can be particularly beneficial for retail, hospitality, and healthcare industries, where demand can vary significantly.
- Flexibility for Zero Hours Contract Workers: For some individuals, especially students, retirees, or those seeking part-time work, zero hour contracts can provide necessary flexibility. It allows workers to balance their employment with other commitments, such as education or family responsibilities.
- Entry-Level Opportunities: Zero hour contracts can serve as entry-level opportunities for individuals entering the job market. It allows them to gain work experience and build their CV, potentially leading to more stable employment in the future.
Cons of 0 Hour Contracts
On the other hand, zero hours workers have a few disadvantages, such as:
- Income Insecurity: One of the major drawbacks of zero-hour contracts is the income insecurity they impose on workers, which permanent employees may not feel. Without guaranteed hours, employees may struggle to budget and plan their finances, leading to increased stress and instability.
- Lack of Employment Benefits: In many cases, workers on zero hour contracts are not entitled to the same benefits as full-time employees. This includes paid leave, health insurance, and retirement benefits. This lack of security and support can contribute to a feeling of disposability among workers.
- Exploitation and Unpredictability: Critics argue that zero hour contracts can be exploited by employers who may misuse the flexibility they provide. Workers may find themselves at the mercy of inconsistent scheduling, making it difficult to plan their personal lives or pursue additional employment.
Employment Rights for Zero Hours Staff
When it comes to 0 hours contracts, you need to take into account the following employer responsibilities and employee rights:
- Zero-hours workers are entitled to statutory annual leave and the National Minimum Wage in the same way as regular employees.
- Most employers also class their zero-contract staff as “workers”, so they are also entitled to rest breaks and statutory sick pay. They do not, however, tend to have the right to maternity pay and leave, flexible working solutions, pensions, the right to claim for unfair dismissal, or the right to redundancy payments.
- You do not need to provide notice when you terminate a worker’s zero-hour contract, unless defined in their contract.
- You must pay all wages through PAYE, including tax and National Insurance (NI) deductions, as with regular employees.
- Workers on zero-hour contracts have the right to work more than one job. This right overrides any exclusivity clauses that may be included in such contracts, in accordance with the Small Business, Enterprise and Employment Act.
- You are responsible for the health and safety of staff on zero-hours contracts.
- All employees, regardless of employment status, are entitled to protection from discrimination.
Ensure you are aware of all employment laws and clearly define all rights, responsibilities and obligations in your zero-hour contracts so that there is no confusion or potential for dispute.
0 Hour Contract Notice Period
As we mentioned above, a worker on a zero-hour contract has no statutory right to a notice period. This is because they are classed as “workers”, not “employees”. Whether or not you choose to offer this benefit is up to you as an employer.
Although you gain flexibility when you do not offer a notice period, it does work both ways and a zero-hour worker could leave your company at short notice and leave you understaffed.
There is, however, one exception to this. If you define your zero-hour staff as employees rather than workers, then by law, you must offer them the same rights as your fixed-term employees, including the right to notice periods. This would apply, for example, if a worker’s hours are fixed and they do not have the right to refuse work (as per the terms of their contract).
Either way, there may not be a legal obligation to define notice periods in your zero-hour contract, but most employers choose to do so as it clearly defines when a worker’s employment will end. It also benefits both parties as a notice period gives the departing worker time to find a new job and you time to find the right replacement.
Statutory Sick Pay (SSP) for Zero-Hour Contract
You must pay minimum wage to all staff on a zero-hour contract, regardless of their employment status. Things get a little more complicated regarding Statutory Sick Pay (SSP).
For example, a zero-hour contract worker’s minimum weekly income must come from one employer to be eligible for SPP (currently set at £95.85 per week for a maximum of 28 weeks). If they work multiple jobs, they may not be entitled to receive any sick pay. Zero-hour contract workers are also only entitled to SSP for their scheduled work days.
To be eligible for SSP, zero-hour contract staff must:
- Be classed as an employee in the terms of their zero-hour contract
- Be ill for four days or more in a row (including days off), or have been told to self-isolate due to Covid-19
- Follow your rules about reporting sickness.
- Have earned, on average, at least £120 per week (before tax) in the past 8 weeks.
Check if your employees are entitled to SSP here.
How to Calculate Zero Hour Contract Holiday Pay
If you class your zero-contract hour staff as employees, then they are entitled to paid holiday, just like any other part-time or fixed-term employee at your company. How much holiday entitlement they get will depend on how many hours they work, how much they are paid, and how long they have been working for you.
The first step in working out zero-hour contract holiday pay is calculating the employee’s average pay from the previous 12 weeks. This must be actual “worked” weeks, not calendar weeks. So if, for example, a zero-hour contract employee only works every second week, then you will need to work out their average for the last 24 weeks (so that 12 “working weeks” are considered).
The process is much simpler if you pay your zero-hour contract employees on a monthly basis. You can determine how much you pay them per week by dividing their monthly average by four.
Zero-hour Contracts and Furlough
One of the biggest challenges for human resources departments over the past year has been the increase in demand for furlough as a result of Covid-19. Perhaps you have had to furlough staff over the past year and you are now wondering how it would work with zero-hour contract workers and employees?
In fact, furloughed employees can be on any type of employment contract. This includes full-time and part-time employees, employees on agency contracts, and employees on flexible/variable or zero-hour contracts.
As with holiday pay and SSP, zero-hour contract employees must meet a series of requirements before they are eligible:
- They were on your PAYE payroll on or before 19 March 2020 (you processed an RTI submission notifying HMRC of payment).
- Their work has been severely affected by Covid-19
- You have discussed furlough with the employee in question and they are in agreement (it is always best to get this in writing).
Check if you can use the Coronavirus Job Retention Scheme for an employee here.
Zero-hour Contract and Redundancy Pay
The final matter to consider is whether your zero-hour contract employees will be entitled to redundancy or severance pay.
There are 2 types of redundancy pay:
- Statutory redundancy pay: what you must pay your employee by employment law
- Contractual redundancy pay: what you must pay your employee according to the terms of their contract.
You must pay your zero-hour contract employee statutory redundancy pay if:
- Their employment status, as defined in their contract, is “employee”
- You have employed them for 2 continuous years or more
- They have lost their job due to a genuine need to make redundancies in your workplace
If an employee meets these requirements, then you must calculate their severance pay as you would with any other departing employee, in line with their age, length of service and weekly wage.
Anything else you offer on top of this is entirely up to you as an employer (except owed holidays, if relevant).
What is a 0 hour contract?
A 0 hours contract, or minimum hours contract, is an employment agreement where the employer is not obligated to provide a minimum number of working hours, and the employee is not obligated to accept any specific hours offered. This flexibility is often seen as a benefit for both employers and employees, allowing businesses to adapt to fluctuating workloads and enabling workers to have a more flexible schedule.
What is meant by a zero-hour contract?
A zero-hour contract is an employment arrangement where the employer doesn’t guarantee a set number of hours, and employees are only paid for the hours worked.
Can I refuse work on a zero-hour contract?
Yes, you can refuse work on a zero-hour contract, but frequent refusal may impact future opportunities.
What are the disadvantages of a zero-hour contract?
Disadvantages of zero-hour contracts include income instability, lack of employment benefits, and minimal job security.
Are zero hour contracts still legal in the UK?
0 hour contracts are legal in the UK if the employer abides by employment law and upholds employee legal rights, including national minimum wage, giving rest breaks and paid holiday.