From Sports Direct to Buckingham Palace, there are more than a million employees across the UK with no minimum contracted hours of work. Known as ‘zero hour contracts’, such arrangements have gained a lot of media attention recently; most of it, admittedly, negative. But what’s the real deal with zero hour contracts for small businesses?

In theory, the zero hour contract is a highly flexible casual work agreement that allows an employer to offer a worker as little or as much work as they wish to staff, and the workers to take as little or as much as they like.

Such arrangements have grown in popularity in the last few years (perhaps as a result of the recession), and there are now thought to be more than1.4 million UK workers on zero hour contracts. However, even though the number of people employed on these contracts has increased, the average hours worked on each contract has decreased, falling from around 30 to 25 hours per week.

So, what are the perks to zero hour contracts?

Positives For Employers

Growth: The ability to grow a workforce quickly, without having to commit to permanent staff, is yet another advantage of zero contract hours for businesses. This allows small organisations to experiment in new market areas with no wages to pay if things don’t work out, but enjoy a ready pool of familiar ‘temp-to-perm’ staff if they do.

Flexibility: Zero hour contracts allow businesses to remain agile and seamlessly adapt to changes in demand, to expand upon their range of services and to increase (or decrease) their geographical reach.

Simplicity and affordability: To put it simply, if the worker isn’t working, the employer isn’t paying. People classed as ‘workers’ rather than ‘employees’ are able to have a much simpler financial relationship with their employer, but the requirements for employers vary depending on whether their workers are classed as ‘employees’ or ‘workers’, and this depends on the precise nature of the relationship.

Positives for Workers

Choice: In theory, workers have a greater say over when they work with zero hours contracts. Those who are happy with existing zero hours contracts say they appreciate the flexibility it gives them over their hours of work, which they can fit around other commitments.

Foot in the door/Keeping a hand in: Such contracts are a good way for inexperienced workers to gain useful grounding, and may lead to permanent contracts and more reliable employment. Similarly, zero hours contracts allow retired or partially retired people to ‘keep their hand in’, generate an income and pursue a wider range of interests.

The Downside of Zero Hours Contracts

Unpredictability: It can be tough to do any kind of financial planning when on a zero hours contract. For those with dependents especially, zero hours contracts can create a state of permanent uncertainty.

Exploitation: In a recent review by the government, it was revealed that some employers caught workers in a vice, using exclusivity clauses to prevent them from working elsewhere, even though the employer had not guaranteed them any work.

Manipulation: Whilst the idea behind zero hours contracts are that workers are afforded more flexibility, some employers have been known to penalise workers who do not take up the work they are offered, even having given little or no prior notice. The shortage of notice and predictability also plays havoc with benefits entitlements and payments.

Rights: As touched upon earlier in this post, most zero hours contractors will be classified as ‘workers’ rather than ‘employees’. As such, they are not entitled to protection from unfair dismissal, the statutory minimum notice of intention to terminate employment, redundancy pay, the right to request flexible working, time off for ante-natal care, unpaid time off to care for dependents or protection in the event of a buyout. But they are entitled to rest breaks, the National Minimum Wage, protection from discrimination, whistleblowing protection and health and safety protection.

With this in mind, take heed that if a worker on a zero hours contract works long enough on a continuous stretch, they may become entitled to full employee status, therefore negating many of the above.

It’s also worth noting at this point that the government has recently included a ban on the use of exclusivity clauses in existing and new-zero hours contracts in the Small Business, Enterprise and Employment Bill. The Bill is currently making its way through Parliament and, if it becomes law, zero hours workers will no longer be prevented from accepting employment with another employer.

This area of management can seem a bit of a minefield, but thankfully this year a best practice code of conduct will be introduced by the government on the fair use of zero hours contracts.

This is a brief article designed to introduce the main areas. citrusHR subscribers have access to the full online system that will support you as an employer as well as a series of management guides explaining what you need to know and how you need to act as an employer. You can sign up for a free trial here.

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