Who do zero hour contracts benefit?
There has been much controversy about the use of zero hour contracts for some time. Whilst the use of casual workers has been commonplace in organisations for many years, it is perhaps due to the rise in this type of working that a spotlight has been shone on zero hour contracts.
According to the Office of National Statistics, there has been a 6% increase in the use of these contracts within the last year; and between April and June this year 744,000 people were employed on zero-hours contracts.
So what are zero hour contracts and how should they be used?
A zero hour contract is an agreement between two parties, ie an organisation and an individual, where the individual may be asked to carry out work for the organisation but there are no minimum contracted hours. The agreement may allow the employee to turn down any work offered to them in the same way that the employer has no obligation to provide work to the individual.
It is worth noting that zero hour contracts do not have a specific meaning in law – therefore, it is vital for employers to be clear about whether those on zero hour contracts are ‘employees’ or ‘workers,’ and to set out the appropriate status, rights and obligations in their contractual agreements.
From an employer’s perspective, the benefit of engaging people on zero hour contracts is probably fairly clear: It provides a natural flexibility to staffing levels which is particularly important in today’s competitive economy and to meet the demands of customers and service users. These contracts are ideal for covering absence and for responding flexibly to variations in work demand without increasing employment costs.
Whilst this is great from an organisation’s perspective, is there really any benefit for an individual to be engaged on a zero hour contract? Certainly individuals increasingly value greater flexibility over how and where they work in order to manage competing demands on their time and improve the balance in their lives. It’s reported that, where individuals have flexibility, they are more likely to be engaged at work and go the extra mile for their employer.
Some individuals will, therefore, find the level of flexibility afforded by zero hour contracts to be a welcome benefit. There will, however, be many that need the stability of regular work and income, and there have been many reports that individuals are only accepting zero hour contracts because they have no alternative. In this situation, it is easy to see why zero hour contracts have gained the reputation of being exploitative, particularly where individuals have not been permitted to take work with other employers.
On this point, the Small Business, Enterprise and Employment Act 2015 introduced a ban on the use of exclusivity clauses in zero hour contracts from May this year. This means that employers can no longer prevent individuals on zero hour contracts from taking work with other organisations. If there is a clause in the contract demanding exclusivity to an employer, this will no longer be enforceable and the individual may effectively ignore the clause. This change in legislation applies to both existing zero hour contacts and any new ones.
In recent months, there has been increasing concern regarding the job insecurity that zero hour contracts can bring to individuals and the emotional side effects this has. This is in contrast to evidence reported by the CIPD in 2013 in their “Zero-hour contracts; myth and reality report”, that individuals on zero hour contracts are as satisfied as employees on fixed employment contracts, and were much happier with the work/life balance.
So, given the negative press associated with zero hour contracts, should they be used? Quite clearly there may be a genuine inherent need for a business to have the level of flexibility afforded by this type of working and, indeed, for it to suit the needs of an individual. It is, therefore, advised that employers only use zero hour contracts where it meets the needs of the individual as well as the business. They should also only be used where there are peaks and troughs of available work and they are not recommended to run the core of your business.
Before using a zero hour contract it is recommended that employers consider a number of factors, including:
- The business need. To what degree are there peaks and troughs in work flow?
- Would an alternative form of contract meet that business need, eg a fixed term or annualised hours contract?
- Exclusivity clauses in zero hour contracts are not unenforceable.
- The difference between a “worker” and “employee” and the statutory rights that are attached to each status.
- Holiday provision is appropriately taken in to account.
- In certain circumstances, an employment relationship may develop with zero hour workers even if that was not the intention.
- Review any zero hour arrangements on a regular basis to ensure they reflect what happens in practice.
Any contract should be carefully drafted to meet the specific needs of the business. Simplicity HR offer a review service for contracts and can work with you to ensure that any contract you are looking to implement in your business (including zero hour) is compliant and meets the need of both your business and the individual, so if you have any doubts contact us today