CIPD Voice: Issue 14

Few people nowadays seem to have a good word for zero hours contracts. After years of being held up as everything that is bad about the modern-day labour market, both the TUC and the Labour Party have called for them to be banned. The Taylor review called for them to be made more expensive, so employees are compensated for the greater insecurity. And the OECD has recently suggested that they should only be used as short term temporary cover.

But do these contracts really deserve such a reputation, and should other related reforms be considered first before resorting to such draconian action?

The approach taken in the UK up to now has been to avoid bans. Instead, policy has attempted to create a level playing field and extend the same employment rights and protections across different forms of employee employment, including zero hours. This has made an important contribution to ensuring that the UK has one of the lowest shares of “atypical” work and one of the highest employment rates in the EU. As zero-hour contract workers account for less than 3 per cent of total employment, their abolition is not going to a death blow to the UK’s flexible labour market. But it hardly helps either, especially at a time of such great economic uncertainty.

Moreover, it creates a dangerous precedent. It would not take much of a leap to argue for restrictive legislation on other forms of employment deemed too exploitative, such as short hour contracts and other forms of temporary work.

In looking at the evidence, we can dispose of two myths straight away. The first is that the apparent increase in zero hours contracts is part of a general increase in atypical work – defined as self-employment, temporary workers, unpaid family workers, and those on government schemes - the share is no higher now that it was 20 years ago. The second is that there has been an explosive growth in zero hours over the past five years – much of the increase is down to more accurate reporting and recording within the statistical surveys.

So, are zero hours contracts so terrible the only solution is to ban them? Let’s start with choice. Most surveys1 suggest that just over 30 per cent of zero hours workers are “involuntary”, with a somewhat TUC smaller survey giving a higher figure of 43 per cent. Elsewhere the TUC suggests that 75 per cent of people on zero hours would prefer regular work. Involuntary working among temporary workers is similar – latest official figures show 30 per cent, down from a peak of 40 per cent in 2012.

Many zero hours contracts would prefer more hours, but again it is a minority – 25 per cent or just over 230,000, according to the ONS. However, many people in regular jobs would like more hours. Latest official figures show that 3.3 million people are classified as “under-employed” because they wanted more hours. And abolition would not of itself produce a single extra hour of work.

A key charge against zero hours contracts is that of unpredictability and the fact that some workers can find shifts cancelled at short notice. This is an undoubted downside for some workers, though it can cut both ways. And again, most zero hours workers are content with their hours according to both CIPD surveys and ONS analysis.

It has sometimes been claimed that zero hours workers are more likely to be classified as workers (with fewer rights) rather than employees. This is not true. CIPD research on zero hours contracts, finds that almost two thirds of employers report that they classify individuals on zero hours contracts as employees compared with just 18% of organisations that classify them as workers.

There is a largely bogus argument about access to statutory sick pay. Zero hours workers have the same rights as those in regular work and all workers must earn a minimum weekly amount to qualify. If there are problems of access due to the nature of zero hours contracts, it would make more sense to campaign for a more inclusive and flexible sick pay system for all workers on low weekly earnings, including those on zero hours.

A similar point may arise due to qualifying periods for some protections including unfair dismissal, but that is also the case for other forms of atypical work such as temporary employment. Again, this should be an area where stronger guidance and reforms should be considered as part of the government’s evolving quality of work strategy.

It is sometimes argued that zero hours workers are paid less than regular employees for the same job. Some research has suggested there may be a pay penalty for workers in zero hours jobs when all other factors are allowed for. CIPD employer surveys have found little evidence to of systematic discrimination against zero hours workers - 63% of employers paid the same rate, 16 per cent more, 9 per cent less. However, pay penalties are hardly unique to zero hours – research has confirmed for example that there can be a pay penalty associated with temporary and part time work.

What we can say is that on average zero hours workers report similar or better quality of work than those on regular contracts, including a lower share saying they feel stressed or under pressure. Surveys2 have also found little difference between zero hours contract workers and temporary or short-hour contract workers . It is not true to assert that zero hours work is on average of lower quality than that offered by regular employment.

If the abolitionists have greatly overstated the case, it does not follow that the status quo is satisfactory or that we would be sanguine if zero hours contracts became much more common than they are at present. Zero hours do not work for everyone. Their use should always be dependent on a robust business case and, wherever possible, employers should offer them as a positive choice. McDonald’s for example is in the process of offering its employees the chance to move to regular contracts and reports that a majority have opted to retain them. At the time of writing, unions in dispute with McDonalds seem to contest this claim.

There are general concerns about the need to make sure that all employees and workers have a written contract setting out terms and conditions in a transparent manner. This is especially important for zero hours workers, where there seems to be some confusion amongst both employers and employees about their status and rights and responsibilities. Well-funded information campaigns combined with strengthening the role of labour market watch-dogs to enforce worker’s rights and penalise bad behaviour would help.

Recent legislation has already banned employers from preventing workers taking second jobs with another employer. It is likely that a right to request will be introduced to bring zero hours workers into line with existing rights for regular workers.

Some have suggested that higher hourly rates should be offered, perhaps via a higher NMW, to compensate workers for the greater unpredictability inherent in zero hours contracts. These are under consideration by the Low Pay Commission, but the CIPD’s initial view is that they are unworkable. Other more useful reforms that might be considered are compensation payments for shifts cancelled at short notice.

Abolition is either irrelevant or would do little to address some of the wider challenges in the workplace today. Bad employers can use zero hours to coerce their employees by threatening to withhold work, but it is naïve to think that bad employers would not carry on with bad practices regardless of what the contract says or declare people self-employed or move them onto a casual labour contract that in practice offered no more certainty. Permanent employment may decline if employers decide to use more temporary contracts, as most zero hours workers say they are permanent. Some people might still gain, but more would lose out because of the loss of choice about when they worked. And it would have wider, albeit modest, adverse impacts on the flexibility of the UK labour market.

We should instead be developing a constructive and positive approach to atypical work, accommodating how people want to work at different stages in their lives in today’s diverse labour market while at the same time robustly confronting abuses and bad practice. This approach should be a key part of the Government’s quality of work strategy.

  1. UKCES (2013) Flexible contracts: views from workers and employers
    CIPD (2013) Zero-hours contracts: myth and reality
    CIPD (2015) Employer/employee views of zero-hours contracts 
  2. UKCES (2013) and CIPD (2015) as in 1 above
Ian Brinkley

Ian Brinkley, Acting Chief Economist

Ian Brinkley has been acting Chief Economist since July 2016. He was previously director of socio-economic programmes at the Work Foundation and held the positions of head of the economic and social affairs department and chief economist at the TUC between 1996 and 2006.