Research findings and recommendations to improve practice in the use of zero-hours contracts
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 employment 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. It also examines legal changes surrounding zero-hours contracts and puts forward good practice recommendations for 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. This fits with more recent data showing that most people in ‘atypical’ employment – whether self-employed, working in the digital ‘gig’ economy or on a zero-hour contract – choose to work this way and are broadly satisfied. 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 shows that zero-hours contract employees are more likely to want to work additional hours, although under-employment is not confined to this group.
Our research also shows that poor employer 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 improve practice, we believe that a code of practice on zero-hours contract working should be developed. A national campaign is needed to raise understanding and awareness among both employers and zero-hours workers on employment status and rights, and all workers should be legally entitled to a written copy of their terms and conditions no later than two months in employment.
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What are zero-hours contracts?
Zero-hours contract is not a legal term but one of a number of types of ‘atypical’ working. 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 what will happen when they turn down work offered.
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 – see more on employment status below).
- 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, organisations should ensure that their zero-hours contracts set out the employment status, rights and obligations of their zero-hours staff.
Find out about more traditional employment contracts in our Contracts of employment factsheet.
Why use zero-hour contracts?
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 for this reason.
Other key reasons for using zero-hours contracts include reducing costs and avoiding the specific costs associated with using agency workers.
In his article in CIPD Voice, Ian Brinkley challenges some of the myths surrounding the use of zero hours contracts in the UK.
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. 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.
Individuals engaged on zero-hours contracts may be employees or workers in terms of their legal rights. Which they are depends on what their contract says and how the relationship between them and their employer works in practice (in other words, whether the legal tests for employment are met). In most cases, those on zero-hours contracts will be workers because there is no mutuality of obligation.
Employers need to be clear about 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.
Recent UK law changes on zero-hours contracts
Banning exclusivity clauses
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.
- Employers will have to compensate workers for shifts cancelled 'without reasonable notice'. It also explores how workers who are penalised for refusing shifts offered at the last minute can be better protected.
- All workers should be entitled to a right to reasonable notice of working hours.
- All workers should be able to move towards a more predictable and stable contract, subject to conditions set out in legislation that the government plans to bring forward.
It also seeks views on what guidance government can provide to support employers and encourage best practice to be shared across industries.
Overall, the package is aimed at addressing the problem of ‘one-sided flexibility’ which implies that the proposals stand a very good chance of becoming law.
What does good practice look like?
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.
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 whether 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. Currently, under the Employment Rights Act 1996, only employees are entitled to this. Employers should also set out in atypical workers’ contracts the notice required by either organisations or individuals if they’re unable to meet their contracted commitments.
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.
Comparing different contract types, standard permanent employees fare better in both skills development and career development than those on temporary or zero-hour contracts. To address this, employers and line managers need to ensure that atypical workers are eligible for their organisation’s training and development activities. Performance management processes should also be setup to give atypical workers regular feedback.
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.
Employers should ensure that all atypical workers, including zero-hour contract workers, are offered comparable pay and employment conditions with those of other workers.
Useful contacts and further reading
Books and reports
DEPARTMENT FOR BUSINESS INNOVATION AND SKILLS (2015) Zero hours contracts: guidance for employers. London: BIS.
OFFICE FOR NATIONAL STATISTICS (2017) Employment contracts that do not guarantee a minimum number of hours: September 2017. London: ONS.
KIRTON, H. (2017) Popularity of zero-hours contracts ‘beginning to unwind’. People Management (online). 19 September.
MAKOFF, A. (2017) One-fifth of zero-hours employees don’t know when they can work. People Management (online). 19 January.
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: Senior 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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