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What Is a Zero Hour Contract?

Key Takeaways

1. Zero hour contracts have been gaining popularity across certain sectors due to the flexibility they offer to both employers and employees. They allow employers to hire employees as required with no obligation to guarantee them minimum working hours. Employees, similarly, are under no obligation to accept work offered to them.

2. An employee under a zero hour contract is entitled to many of the rights of an employee under a traditional employment contract.

3. A zero hour employment contract has several advantages for both parties, however, controversy remains as many feel they are weighted in favor of employers and can lead to employee exploitation.

4. Zero hour contracts are commonly used in industries that experience fluctuations in demand such as those in need of seasonal workers or that require extra staff on short notice.

The zero hour contract has gained popularity over the last several years with such contracts now being commonplace across many sectors. Despite the flexibility they offer to both employers and employees, zero-hour contracts are not without their controversy, with some countries having introduced bans on them. In this article, we’ll explore some of the main advantages and disadvantages of zero-hour contracts from the perspective of both parties.

What does a ‘zero hour contract’ mean? 

Zero-hour contracts, also known as ‘casual contracts’, are a type of employment contract where an employer is under no obligation to provide minimum working hours or the guarantee of work to the employee, and where the employee is under no obligation to accept work that is offered to them. 

This type of employment contract is common in certain countries with employment law in Australia as well as the UK making this form of working style permissible. In 2021, there were around 917,000 workers on zero-hour contracts in the UK. However, in countries such as New Zealand zero hour contracts are no longer permitted as employment laws have been introduced to make employment practices fairer.

A zero hour contract can be characterized by the following elements:

  • Employees are on call to work when required
  • Employers are not obligated to give them work
  • Employees are not obligated to accept work when asked.

What are an employee’s key zero hour contract rights?

Individuals on a zero hours contract will either have the employment rights of a ’worker’ or an ‘employee’, with the latter being more beneficial.

Below are some of the key employment rights employees on zero hour contracts are entitled to: 

  • Statutory sick pay
  • Statutory maternity or paternity leave
  • Protection against discrimination
  • 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 unfair dismissal
  • Statutory minimum paid holiday

Zero hour contract advantages and disadvantages

There are many reasons an employer would choose to use zero hour contracts for its employees, however, there are pros and cons to doing so. To make an informed decision for your business needs, we have outlined the main advantages and disadvantages of zero hour contracts for both an employer and an employee.

Zero hour contract advantages

Below are some of the advantages for an employer and an employee of engaging in a zero hour contract.

Advantages for Employers

  • Flexibility
  • It can be difficult to hire permanent staff during slow periods. Zero hour contracts give employers the flexibility to hire staff according to the needs of their business allowing them to respond quickly and effectively to changes as they occur. This is especially beneficial for seasonal businesses which give employers the flexibility to meet staffing requirements around peaks and dips in demand. Zero hour contracts also offer employers the ability to better deal with situations such as staff absences and unforeseen events.
  • Cost savings
  • With no commitment to offer employees fixed hours, as well as the ability to alter scheduled hours at little notice, zero hour contracts offer employers substantial cost savings. Employers only need to pay their staff for the hours they work and do not have to pay any additional costs such as employee benefits. Zero hour contracts also make a more cost-effective alternative to hiring agency workers which involves paying commission and agency fees. 

Advantages for Employees

  • Flexibility
  • Zero hour contracts give employees the flexibility to work when it suits them without having to forgo other commitments. This ability to accept or reject work can be attractive to those who have to care for dependents, study or who have other jobs. 
  • Supplemental Income
  • The flexible nature of a zero hour contract and the lack of restrictions imposed by it offers those who already have full-time jobs a source of supplemental income.
  • Opportunities for stable work
  • The nature of zero hour contracts means employers are more likely to take a risk on hiring someone without experience. This allows inexperienced employees the chance to gain work experience in a certain industry as well as become familiarized with a company’s culture, staff and policies all of which may lead to a permanent position within an organization.

Disadvantages for Employers

  • Risk of misclassification
  • A company may hire staff to fulfill a variety of different requirements resulting in a full-time and contingent workforce. Individuals may be engaged for a certain type of work and for fixed periods or set projects as in the case of independent contractors, consultants, freelancers or other workers outsourced on a per-job and fixed contract basis. Many employers do not know how to classify zero hour employees. Misclassifying zero hour contract employees as contingent workers or full or part-time employees can result in fines for employers as well as legal and tax implications and even jail time.
  • Payroll complications
  • Zero hour contract employees are entitled to the same holiday pay and annual leave as other employees, however,  complications can arise when it comes to payroll as employers need to calculate how much holiday the employee is entitled to. This can be complicated when the employee works irregular hours and can lead to disagreements and potential disputes. Holiday pay entitlement for zero hour contract employees is usually worked out on a pro-rata amount based on the hours worked.
  • Lack of certainty
  • The flexible nature of zero hour contracts means employees are free to either accept or reject work that is offered to them without prior notice to the employer. This lack of certainty can create problems for employers, leaving them short-staffed or in the lurch and having to make last-minute hires. 

Disadvantages for Employees

  • Income insecurity
  • As there is no guarantee of scheduled hours under a zero hour contract such employees can lack income security and find difficulties budgeting and meeting their financial responsibilities due to fluctuating and unreliable income levels. For example, a zero hour contract employee may work a 40-hour week followed by a week where they are not offered any work at all as there aren’t enough shifts to go around. Employees under these contracts also tend to earn less per hour compared to those who work under more common employment contracts such as indefinite term contracts.
  • Risk of unfair or constructive dismissal
  • Although employees under a zero hour contract have the right to claim unfair dismissal in practice this can be difficult to prove when an employer reduces an employee’s hours to zero rather than dismissing them.
  • Undue pressure
  • Under a zero hour contract, an employee is not obligated to accept work that is offered to them. However, employees can feel pressured into accepting proposed hours out of fear that they may not be offered work in the future.  There may also be fear of retaliation by their employer if they choose not to accept work offered to them.

Video explainer: Zero hour contracts

Horizons drafts compliant employment contracts — anywhere in the world 

In recent years there have been a number of changes to employment/labor laws in the UK relating to matters such as Brexit, changes to IR35 tax as well as national insurance. This increasing complexity can make it challenging for employers to stay compliant with the required employment laws. 

If you are looking to hire employees in the UK, Horizons can assist your organization with its compliance responsibilities by helping you hire employees with compliant employment contracts, allowing your business to focus on core business matters instead. Contact us today to find out more.

Frequently Asked Questions (FAQ)

Zero hour contracts can offer both employers and employees the advantage of a flexible working option. Engaging people in this way can allow employers to respond effectively to fluctuations in their business while giving employees the ability to accept or reject work as it suits them. However, such contracts are not without controversy and the debate continues as to whether they exploit workers due to factors such as the lack of security and stability which are offered by more traditional employment contracts.

Zero hour contracts are commonly used in industries where there is irregular or inconsistent demand for staff. Examples include areas that experience fluctuations in demand such as those in need of seasonal workers or that require extra staff on short notice. These industries typically include retail, hospitality, education and gig economy work.

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