Unlike a traditional contract of employment, a zero-hours contract offers no guarantee of work. Many employers use such contracts to cover situations where work fluctuates, and many individuals also find this to be a suitable working arrangement. However, there has been criticism of their widespread use in the UK. Although there is currently no legal definition for a zero-hours contract, employers need to ensure that written contracts contain provisions setting out the status, rights and obligations of their zero-hours staff.

This factsheet examines the business rationale for considering zero-hours contracts in the workplace, and the issues to consider when using zero-hours contracts (such as the employment status of the individual). It also examines legislative changes surrounding zero-hours contracts and puts forward good-practice recommendations for those areas where some employers need to improve their working practices.

Used responsibly, zero-hours contracts can provide flexibility that works for both employers and individuals. Our research reports have found that zero-hours contract employees in the UK are, on average, as satisfied with their jobs as employees as a whole. But they aren’t suitable for everybody. The potential variability of work and earnings can be a source of financial instability and stress. Our research also shows that zero-hours contract employees are more likely to want to work additional hours, although under-employment is not confined to this group.

However, our research shows that poor practice does exist. For example, only 45% of employers using zero-hours contracts have a written policy or procedure for what happens when work is cancelled at short notice.

To help improve practice, we believe that an agreed code of practice on zero-hours contract working should be developed. There should be a national campaign to raise understanding and awareness among both employers and zero-hours workers on the issue of employment status and rights, and all workers should be legally entitled to a written copy of their terms and conditions not later than two months in employment.

Zero hours contract is not a legal term. In the absence of a legal definition, the CIPD defines a zero-hours 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 will state what pay the individual will get if they do work and will deal with circumstances in which work may be offered and possibly turned down’.

The exact nature of zero hours contracts may differ from organisation to organisation. For example:

  • Individuals on zero-hours contracts may be engaged as employees or workers.
  • In some zero-hours contracts the individual will be obliged to accept work if offered, but in others they will not.
  • The pay arrangements and benefits provided may differ from those provided to people doing the same job with a contract offering guaranteed hours.

Because ‘zero-hours contract’ does not have a specific meaning in law, it’s important for employers to ensure that written contracts contain provisions setting out the status, rights and obligations of their zero-hours staff.

Organisations considering using zero-hours contracts should think carefully about the business rationale for doing this, including whether there are other types of flexible working or employment practices that would deliver the same benefits.

These types of working arrangements are most suited to situations where work fluctuates unexpectedly and where consequently the employer cannot always guarantee work.

According to our research Zero-hours and short-hours contracts in the UK: employer and employee perspectives, the most common reason employers use zero-hours contracts is to provide them with the flexibility to manage fluctuations in demand, with two-thirds of organisations citing this. However, employers also regard zero-hours contracts as a means of providing flexibility for individuals, with the same research reporting that just over half of respondents say they use them to provide flexibility for individuals.

Other key reasons for using zero-hours contracts include reducing costs and avoiding the specific costs associated with using agency workers.

Employment status is a key issue that employers need to consider when using zero-hours contracts and undoubtedly one of the many challenging aspects of managing such contracts. Employers need to work out which category zero-hour workers belong to and consider the rights and conditions they are entitled to. For more information on this, read our guide Zero-hours contracts: understanding the law.

The employment relationship can change so employers should carry out a regular review to ensure that individuals are being managed in line with the status specified in their contract. Ideally, line managers should also receive training so they understand fully the different types, their advantages and disadvantages.

The three main types are: employee, worker and self-employed. The correct status category depends to an extent on the content of the actual or implied employment contract, but ultimately a legal decision would be based on how working arrangements operate in practice. CIPD members can find more detail in our law Q&As on employee status.

The legal tests for each type are:

Employee

An individual will be an employee if:

  • there is an obligation to provide personal service, and
  • there is mutuality of obligation, and
  • the employer controls the way in which work is done, and
  • other factors are consistent with employment (for example level of integration into business, label applied by the parties, nature and length of engagement, benefits received by the individual).

Self-employed

An individual will be self-employed if:

  • there is no obligation to provide personal service, or
  • there is no mutuality of obligation, or
  • they are carrying out a business and the other party is the customer.

Whether an individual is carrying out a business and whether the other party is a customer of that business will depend on various factors being established, such as:

  • The employer does not exert a high level of control over the individual.
  • The individual is not integrated into the employer’s business.
  • The individual actively markets his or her services to the world in general.
  • The engagement is relatively short in duration.
  • The individual is providing specialist services.
  • The individual invoices for fees.
  • The individual supplies the equipment needed to perform the service.
  • The individual carries a level of risk (for example, if the work is not done, the individual does not get paid).

Worker

An individual will be a worker if:

  • there is an obligation to provide personal service, and
  • there is mutuality of obligation, and
  • they are not carrying out a business and the other party is not a customer, and
  • they don't otherwise meet the test for being an employee.

‘Worker’ is the hardest category to identify because workers tend to exhibit characteristics of both employee and self-employed status. One way to understand what a worker is, is to think of workers as a ‘sweep up’ category which ensures that individuals who would otherwise be self-employed, but who show some characteristics of employees (for example control), have meaningful legal rights. It's important to remember that all employees are workers.

In May 2015, following a consultation exercise and as part of the Small Business, Enterprise and Employment Act 2015, the government banned exclusivity clauses for zero-hours contracts. It’s now against the law for an employer to prevent an individual who is employed under a zero-hours contract from working elsewhere. Further regulations came into force in January 2016 giving zero hours workers the right not to be unfairly dismissed or subjected to a detriment for failing to comply with an exclusivity clause, and to claim compensation.

Looking ahead, one of Theresa May’s first acts as Prime Minister was to appoint Matthew Taylor, Chief Executive of the Royal Society of Arts, to lead an independent review on modern employment practices to see how they need to change to keep pace with business models. The review’s report is expected in the second half of 2017 and is likely to have implications for government policy in many aspects of the gig-economy, including the use of zero-hour contracts.

Our research reports Zero-hours contracts: myth and reality and Zero-hours and short-hours contracts in the UK: employer and employee perspectives identified areas where some employers need to improve their working practices. Recommendations include:

  • Employers should only use zero-hours contracts where the flexibility inherent in these types of arrangement suits both the organisation and the individual.

  • Employers should consider whether zero-hours working is appropriate for their business and if there are alternative means of providing flexibility for the organisation, for example, through the use of annualised hours or other flexible working options. Zero-hours working lends itself to situations where the workload is irregular, there is not a constant need for staff or staff needs are driven by external factors outside the employer’s control.

  • All zero-hours contract workers should receive a written copy of their terms and conditions. We have called for all workers to be entitled to a written terms and conditions statement no later than two months into their contract. Currently, under the Employment Rights Act 1996, only employees are entitled to this.

  • Employers should set out in the contract the employment status of those engaged on zero-hours contracts and conduct regular reviews (at least once a year) of how these contracts are operating in practice. Reviews should include conversations with line managers and staff on zero-hours contracts. If the reality of the employment relationship no longer matches the contract of employment, one or the other should be adjusted to bring them into line.

  • Employers need to provide training and guidance for line managers to ensure they are managing zero-hours workers in line with their employment status. Training must ensure that line managers are aware that zero-hours workers have a legal right to work for other employers when there is no work available from their primary employer.

  • Employers should provide zero-hours workers with reasonable compensation if pre-arranged work is cancelled with little or no notice. We believe a reasonable minimum would be to reimburse any travel expenses incurred and provide at least an hour’s pay as compensation. Some employers appear to go further than this, for example by paying employees in full for shifts cancelled at short notice. This seems a reasonable position if organisations also prevent or penalise employees from cancelling pre-arranged work at short notice.

  • Employers should ensure there are comparable rates of pay for people doing the same job regardless of differences in their employment status. This could be written into employment policies and terms and conditions with practice reviewed periodically.

Contacts

Acas – zero hours contracts

Books

DEPARTMENT FOR BUSINESS INNOVATION AND SKILLS (2015) Zero hours contracts: guidance for employers. London: BIS.

OFFICE FOR NATIONAL STATISTICS (2016) Employment contracts that do not guarantee a minimum number of hours: 2016 update. London: ONS.

Visit the CIPD Store to see all our priced publications currently in print.

Journals

BURT, E. (2016) Use of zero-hours contracts up 21 per cent in a year. PM Daily. 8 September. .

MAKOFF, A. (2017) One-fifth of zero-hours employees don’t know when they can work. PM Daily, 19 January.

No guarantees: the problem with zero hours. (2014) IDS Employment Law Brief. No 1007, October. pp14-19.

STEVENS, E. (2016) How to ... employ an individual on a zero hours contract: status of casual and zero hours staff. Employers’ Law. June. pp18-19.

CIPD members can use our online journals to find articles from over 300 journal titles relevant to HR.

Members and People Management subscribers can see articles on the People Management website.

This factsheet was last updated by Gerwyn Davies.

Gerwyn Davies

Gerwyn Davies: Labour Market Adviser

Gerwyn is the CIPD’s Public Policy Adviser for a wide range of labour market issues. With lead responsibility for welfare reform, migration and zero-hour contracts at the CIPD, Gerwyn has led and shaped the policy debate and achieved substantial national media coverage through various publications. These include Zero-hours contracts: myth and reality (2013) and The growth of EU labour: assessing the impact on the UK labour market (2014). 

In addition Gerwyn authors the CIPD's high profile and influential quarterly Labour Market Outlook. Gerwyn is an experienced labour market commentator, making regular appearances in the national media and on other public platforms, including several appearances before the House of Commons Work and Pensions select committee.


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