23 Oct 2020
Zero hour contracts are often a point of contention. The appeal of this contract is its flexible nature, but that’s also where most issues arise.
In this article, we’ll break down what a zero hours contract is and whether they’re right for your business. We'll also discuss how to draft one, should you need it.
What is a zero hour contract?
This is an employment contract with no guaranteed hours. We also know them as casual contracts. Many contracts offer minimum hours for an employee, but a zero hour contract does not.
The main feature of this employment contract is its flexibility. Working hours fluctuate in zero hour contracts. But, this flexibility isn’t the only feature that separates it from a regular contract.
Another important feature is that an individual on zero hour contracts in the UK can get work elsewhere. Legally, you cannot stop them from looking for work or accepting work from another employer.
There are some similarities to a traditional employment contract, however. For example, you are still responsible for the health & safety of your staff.
But the main feature is the amount of work the individual undertakes. It is a zero hour contract, after all.
The three primary principles you need to remember are the following:
- The individual is on call to work when you need them
- You are not obligated to give them work
- They are not obligated to accept the work you offer them
Who introduced zero hour contracts?
This type of employment contract has developed over time. They were common in 2011, favoured by specific sectors. Hospitality and health sectors utilised them more often than most.
This makes the question of who created zero hour contracts difficult to answer. The modern format came into use in 2015 when exclusivity clauses became unlawful.
As a result of this, employers couldn’t stop workers from taking alternative work.
Zero hour contract – advantages and disadvantages
In this section we’ll focus on whether zero hours contracts are right for your business. We’ll determine this by weighing up the pros and cons.
First, the advantages:
What is the benefit of a zero hour contract?
- Flexibility: This is probably the one you’re most aware of. If your workload fluctuates, a zero hour contract keeps your workforce agile.
- Business growth: Ideal for new businesses or those expanding into a new market. This type of contract allows you to dip your toe in the water before jumping in. More flexible contracts will mitigate the risk of paying employees to take on less work than expected.
- Simplicity: The financial relationship between you and your workers is simple. If they work, you pay. If they don’t work, you don’t pay. If both sides are happy then you have an easy, affordable working relationship.
What are the disadvantages of a zero hours contract?
- Unpredictability: If a member of staff with a zero hour contract refuses to work, there isn’t much you can do. If there’s an essential job that needs doing, and no-one wants to do it, you’re in trouble. Given enough notice, this is a rare position to be in, but it’s something to consider. Careful planning and open communication can help mitigate this issue.
- Financial planning: Unlike a regular employee, pay for temporary workers is always unpredictable. The inability to have a permanent financial plan can create uncertainty. It also opens the door for costly pay mistakes.
- Lack of control: You cannot stop a worker accepting work from another employer. This includes competitors, which presents clear issues for yourself. Any attempt to remove them may result in a claim of unfair dismissal. Conflicting schedules may also result in an employee being unavailable for work you want them to do.
Zero hour contract rights
In almost all cases, we will classify an individual on a zero hours contract in the UK as a ‘worker’. This is significant, as it means they’re not entitled to certain rights that an employee would enjoy.
- Protection from unfair dismissal
- Statutory minimum notice of intention to terminate employment
- Redundancy pay
- Right to request flexible working
- Unpaid time off to care for dependants
- Protection in the event of a buyout or change of employer
However, this isn't true if you have employees on a zero hours contract and they’re referred to as an ‘employee’. In this case, they’ll have all the rights detailed above.
Employment law has some rights that apply to both workers and employees, these are:
- Statutory minimum level of paid holiday (entitled to 5.6 weeks or 28 days paid leave)
- Rest breaks
- National Minimum Wage
- Protection from discrimination
- Whistleblowing protection
- Health & safety protection
There are also rights specific to individuals on this type of contract. This is regardless of employment status.
For example, those on a zero hour contract may refuse to work certain jobs when offered. Legally, they don’t have to accept.
The inverse of this is your right as an employer to not offer any work.
You should also consider the Working Time Directive. This states that workers can’t work more than 48 hours a week on average. Individuals can choose to opt out of the 48-hour week, but you’re not legally obliged to provide more hours.
Zero hour contract holiday pay
For those working zero contract hours, holiday pay and entitlement can be a point of tension. As mentioned above, all workers legally get 5.6 weeks of paid holiday entitlement per year.
Workers gain holiday days the same as employees, but it’s easier to base this on hours, rather than days worked. Zero hour workers have no guaranteed hours, meaning the amount of time they work will vary.
The best way to calculate holiday pay entitlement is to use a holiday entitlement calculator. Or, you can determine the worker’s average pay over the preceding 52 weeks of employment.
If there is a week within that date range where the worker didn’t work, then use the previous week’s pay instead.
You do this to provide a total of 52 weeks of work carried out, rather than attempt to navigate significant gaps in your working.
Zero hour contract legal working hours
Some workers may ask the question: “How many hours is full time in the UK?” believing that a certain amount of working hours negates the zero hour contract, and entitles them to employee status.
However, it isn’t the amount of hours that the individual works, but several different factors. These include control, personal service, and mutuality of obligation.
This doesn’t mean working hours have no impact on the contract. If a worker works regular hours over an extended period of time, this may impact their contract. The worker may have a case for changing their contract to have a minimum number of hours in it.
Others may ask: “Is it illegal to work 7 days a week in the UK?”
The simple answer is yes, unless the employee has opted out of the 48-hour week. As an employer, you can ask an employee to opt out. If they refuse, you cannot dismiss them, or treat them unfairly for doing so.
Terminating a zero hour contract
There are important differences to note when dismissing an employee on this type of contract. One of the main concerns is zero hour contract notice periods. Workers have no statutory right to a notice period.
It’s good practice to give some notice, but there is no legal obligation for you to do so.
However, if the individual is an employee, you may have to reconsider. Even if they’re on a zero hour contract, statutory notice will apply. Before making a worker redundant, always check if you classify them as an employee.
If you need to do this, refer to cases that confirmed zero hour contract workers were employees.
Zero hour contract – making the news
Zero hour contracts have had many tribunal cases compared to other employment law subjects. Large companies, such as Sports Direct, Uber, and Deliveroo, have made headlines in relation to zero hour contracts.
This means zero hour contracts are an issue in the public consciousness.
This raises the frequently asked question:
“Are 0 hour contracts illegal?”
The answer is no. However, it is a risk.
The contract itself makes it easy for some employers to take advantage of workers.
There are issues with employee pay dipping below the national minimum wage. There are also issues with the benefits they’re entitled to.
Finally, there’s the issue of classification of ‘worker’ and ‘employee’. There is now a precedent for workers on zero hours contracts to claim that they are employees.
Thanks to this, they are now entitled to certain benefits.
It is for these reasons that it’s vital you seek independent advice when looking to employ zero hour workers.
Zero hour contract template
See below for a basic summary of the points to include in your ZHC:
- Status of agreement: If the individual is a worker, confirm that you’re under no obligation to provide work. Or, you are if they are an employee.
- Offering work (Company Discretion): Detail the specifics of how and when you’ll offer work. This includes how the worker should accept.
- Type of work: Detail the type of work you’ll offer.
- Arrangements for work: Detail how you’ll communicate work requirements with the worker.
- Pay: Detail arrangements for paying the employee. This includes how pay is calculated as well as an hourly rate.
- Hour of work: Reiterate that you’ll give hours at your discretion, as well as any break entitlements.
- Place of work: Detail location of head office and other locations if the role requires work on multiple locations.
- Holiday entitlement: Explain how you’ll calculate the worker’s entitlement and holiday pay.
- Sickness: Set out your sickness procedure and any sick pay rules.
- Rules and procedures: Detail your company rules and procedures. Inform the individual of their responsibility to follow them.
- Data Protection: For individuals carrying out work involving sensitive data, explain the GDPR, and how it impacts them. Also, explain your company’s commitment to protecting the data of workers.
- Governing law: A statement confirming that English law governs the contract.
You may also include:
- Details on terminating the contract.
- Use of company property.
- A separate confidential information clause.
- Working time opt out.
If you’re new to zero hour contracts, or have been using them for some time, there are always risks.
To ensure you don’t fall foul of common mistakes, speak to an expert Croner adviser today on 0145 585 8132
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