A zero-hour contract is a type of contract between an employer and a worker, where the employer is not obliged to provide any minimum working hours, while the worker is not obliged to accept any work offered.
Everyone employed on a zero hours contract is entitled to some statutory employment rights.
Any individual on a zero hours contract is entitled to at least the national minimum wage, paid annual leave, rest breaks and protection from discrimination.
The above is the main difference between a zero hours worker and a freelancer, but with a zero hours worker, unlike a freelancer, it is the employer’s responsibility to sort national insurance and tax through PAYE.
Zero hours contracts can offer businesses welcome flexibility to workers who wish to work irregular hours around their lifestyle.
Here are some of the issues an employer faces when it comes to Zero-hour contracts
For employees or workers whose hours differ from week to week, holiday pay will be calculated on the average pay the employee earned in the past 12 weeks in which they were paid. For a worker or employee on a zero hours contract, there may be a week when they have not worked at all. If this is the case, you need to count back a week to ensure that the rate is based on 12 weeks in which they were paid.
Again, a standard notice period is one week for an employee that’s been with you for a month, and a minimum of two weeks for those that have been with you for longer than that.
However, it is likely that if an employee hands in their notice when on a zero-hour contract, the hours will stop, and come the end of the notice period, a P45 will be passed on.
This is a very sticky situation when it comes to zero hours contracts. Zero hours workers will be entitled to the same Statutory Sick Pay (SSP) as employees if they reach the Lower Earnings Limit and earn at least £116 (before tax) per week. Zero hours workers earnings are likely to fluctuate.
Your sick pay policy may be different from this.
Good uses for zero hours contracts
A zero hours contract should be used where the employer simply wishes to engage a worker on a casual basis and would benefit from the flexibility of not promising a set number of hours and days of work in the future.
A zero hours contract is suitable for businesses which need a flexible supply of workers because they may experience changing demands or cannot predict the exact levels of staffing that they will need at all times.
- New businesses or when entering a new market. If a business is unsure of how well it will do, it will not know how many staff members it needs.
- Seasonal work. In some industries there may be an increase in demand for temporary staff to cover busy periods, such as the Christmas shopping period in retail, or the summer months for horticultural businesses.
- Unexpected absence. It can be helpful to have experienced staff available to cover sudden sickness or other emergencies.
Exclusivity clauses in zero hours contracts have now been banned by the Government under the Small Business, Enterprise and Employment Act.
This means that you cannot use clauses that prevent a worker under a zero hours contract from working for another business or even attempt to avoid this by making the worker ask permission before doing so.
Alternatives for Zero Hours contracts
Employers should consider whether a zero hours contract is the best type of contract for their business need depending on the nature of the work to be offered and the specific circumstances. Depending on the business need, alternatives might include:
- Offering overtime to permanent staff to ensure experienced staff deal with temporary fluctuations in demand.
- Recruiting a part time employee or someone on a fixed term contract if regular hours need to be worked to adapt to a change in the business needs.
- Offering annualised hours contracts if peaks in demand are known across a year.
- Using agency staff can be a quicker and easier way to hire someone if staff are needed temporarily or at short notice
Contracts should be clear and transparent, so the individual can understand their rights and what the implications of such a contract means to them. For more information see the employment contracts guidance.
Employers should plan and give as much notice as possible when offering work. Those who work on a zero hours contract may have caring responsibilities or have studies and may need to plan for childcare or around exams. Employers should be transparent about how they offer work.
Cancelling work at late notice, or when the individual turns up at the place of work, is unacceptable unless truly unavoidable.
Employers should consider putting into place a policy explaining the circumstances when and how work might be cancelled, and how they try to avoid this, and whether the individual can expect any compensation for caring costs they may have incurred.
When recruiting for a zero hours contract, the job should be clearly advertised as such and the individual should be clear that hours are not guaranteed, and that work may cease if there is a fall in demand.
Employers should ensure they familiarise themselves with their responsibilities when employing someone on a zero hours contract. Employers must comply with every aspect of the law, including employment law.
Those who take up work on a zero hours contract are often students, partially retired, or have caring commitments. As an employer you should respect the needs of those individuals to arrange care and be flexible in whether they can accept work at short notice or if they cannot arrange suitable care.