A zero-hours contract is an agreement between an employer and an individual where the employer does not guarantee to provide a set number of working hours and only pays for the work actually undertaken. In practice, this means the employer does not have to give the individual work, and they are not obliged to accept any work offered to them. They provide flexibility for businesses dealing with fluctuating demand and are often used in sectors like retail, hospitality, and healthcare.
While these contracts can be useful for managing short-term or irregular staffing needs, employers have to be aware of the associated risks and responsibilities. Individuals on zero-hours contracts are typically classified as ‘workers’ under UK employment law, giving them statutory rights such as the National Minimum Wage, paid holiday, rest breaks and protection from discrimination and whistleblowing.
Employers should keep zero-hours contracts under regular review and consider alternatives, such as part-time or fixed-term contracts, if hours become predictable. Misuse or over-reliance on these contracts can expose businesses to legal challenges, so they must be used fairly and transparently.
In this guide, we set out the key benefits, and risks, for employers of using zero-hour contracts.
Benefits of using zero hour contracts
The growth of zero-hours contracts in the UK has mirrored the rapid expansion of the gig economy, as flexibility has become a standard expectation for both employers and workers. These contracts allow businesses to adapt to fluctuating demand while offering workers the ability to choose assignments and work patterns that suit their personal circumstances. Sectors such as hospitality, retail, and care services have seen significant reliance on zero-hours arrangements, with benefits including:
- Flexibility: at certain points in the year, your business may experience fluctuations in demand and you may need more staff to cover these periods. Zero-hour contracts allow your business to remain nimble.
- Growth: new businesses, or those more established companies who are experimenting in new market areas, may be uncertain as to the volume of work to expect. Taking on zero-hours workers could help to reduce the risk of hiring and having to pay more employees than is required.
- Affordability and simplicity: if the worker does not work, then the employer does not have to pay them. Individuals classed as workers are not entitled to additional rights, such as statutory minimum notice periods, maternity pay, and redundancy payments, and will therefore cost less to the business.
- Productivity, quality of work and worker retention: flexible working patterns generally have a positive impact on staff retention and productivity, with the number of workers asking for flexible working hours increasing exponentially over recent years.
- Choice: workers on zero-hours contracts generally have a greater say over when and how they work, which gives them increased flexibility to fit their work around other commitments.
- Getting a foot in the door: zero-hours contracts are an excellent way for inexperienced workers to gain useful knowledge and experience in a new sector. This may lead to permanent contracts and more reliable employment. They also let partially retired or retired workers to work on an ad hoc basis and generate extra income.
Risks of using zero hour contracts
Over time, an individual’s employment status may change to reflect changes in the working relationship. Despite what is said on paper, an employment tribunal will look at what happens in practice. This means the employer will need to be aware if a zero-hours worker in effect becomes a worker or employee due to changes such as the degree to which the individual has become integrated in the organisation. If such changes do take place, it is advisable to agree to a new contract with the individual to reflect the change of status and avoid issues such as failing to provide the individual with their full rights and entitlements in accordance with their ‘actual’ employment status.
Other disadvantages include:
- Unpredictability for the employer: because zero-hours contractors do not have to accept the hours allocated to them, there is a risk that an employer may not be able to find another worker who is either suitable or available. In order to limit this happening, it is always wise to give the worker as much advance notice as possible. Remember that flexibility works both ways. There have been several high-profile companies who have been called out for placing unreasonable demands on zero-hours contractors’ availability at short notice.
- Unpredictability for the worker: it can be difficult to do any financial planning on a zero-hours contract, which creates a permanent state of uncertainty and anxiety.
- Lack of control over the worker: employers cannot prevent workers from working for another employer, even a competitor, and the law will be on their side if an employer treats them unfairly for doing so. In such a situation, the worker has the right to claim unfair dismissal from the first day of their contract.
Rights under zero-hours contracts
Establishing an individual’s employment status is important because it determines their legal rights. Although it is possible for an employer to give an individual additional rights within their employment contract, their legal rights conferred by government cannot be taken away.
Employees benefit from the highest levels of protection, which includes the right not to be unfairly dismissed, the right to statutory minimum notice, and statutory redundancy pay, family centred rights, certain other rights to time off and protection against whistleblowing and discrimination.
Workers have fewer rights than employees, and have rights relating to pay, rights under the working time directive and whistleblowing legislation and protection from discrimination. Self-employed individuals only have contractual rights, although they may be protected from discrimination, and they are protected under the data protection legislation as “data subjects.”
In most circumstances, those individuals working on a zero-hours contract will be considered ‘workers’ as opposed to ‘employees’. Workers on zero-hours contracts are entitled to some statutory employment rights such as:
- The National Minimum Wage
- Paid statutory holiday
- Rest breaks
- Right to request flexible working
- Health and safety protections
- Protection against discrimination and whistleblowing
The use of exclusivity clauses in zero-hours contracts is also banned, which means zero-hours employees cannot be prohibited from taking on work with another employer by their zero-hour contract employer.
As workers, they are not legally entitled to:
- Protection from unfair dismissal
- The statutory minimum notice of intention to terminate employment
- Redundancy pay
- Unpaid time off to care for dependants
- Protection in the event of a company buyout or change of owner
If used correctly, zero-hours contracts should not pose a threat or risk to a company regarding a worker’s rights and entitlements. The greatest risk is incorrectly categorising an individual as a worker, and treating them as one, when they are in practice and in law, an employee.
Are zero-hour contracts workers or employees?
There are legal tests to determine employment status, which include the type of responsibilities and obligations that employers and employees owe to one another. The three main types of employee are: employee, worker, and self-employed workers. Almost every working person will fall into one of these categories. The correct category an individual will fall into depends on factors such as what the contract of employment says, how the working arrangements operate in reality, and the outcome of the relevant statutory tests on employment status.
The following are the key tenets to consider when determining employment status:
- Control: this means the employer has the ability and power to determine what, how, when and where the work is carried out. There is also a focus on whether the employer has a contractual right to control, as opposed to exercising day-to-day supervision over the individual.
- Mutuality of obligation: essentially means there is either a contract between the employer and the individual under which the employer is obligated to provide work, and the individual is obligated to accept it in return for being paid a wage. In simpler terms, it can also mean there is a contract (written or spoken) between the parties. So even if the contract does not obligate the employer to provide work, nor an obligation on the individual to accept it, the individual will still be considered as an employee or worker if the contract is in every other respect consistent with employee or worker status.
- Personal service: this means that the individual agrees to carry out work or services personally, that is, by themselves. If an individual is free to send a substitute to carry out work in their place, this will be inconsistent with an employee or worker relationship. That said, the right of the individual to substitute must exist in practice, and not be significantly restricted.
For example, an individual will probably be considered as an employee where there is an obligation on them specifically to provide a personal service; where there is a ‘mutuality of obligation’; where the employer controls the manner and way in which the work is undertaken by the individual, and where additional factors are present that are deemed consistent with employment. This could be the level the individual is integrated into the company, the label applied by the employer and employee, the length and nature of their engagement, and any benefits received by the individual in question, for example.
An individual is likely to be considered self-employed if they are not a worker or an employer. This would apply where there no obligation to provide personal service can be established; where there is no mutuality of obligation between the parties; where the individual is carrying out a business and the other party is the customer. Whether the individual is carrying out a business and whether the other party is a customer depends on a variety of factors being established, including: the employer not having a high level of control over the person, the individual not being integrated into the employer’s business, the individual actively marketing their business and/or services to the world in general, engagement between the parties is relatively short, they are providing the employer with specialist services; they invoice the employer for fees, the individual supplies their own equipment required to complete or perform the service, and they carry a level of risk such that if they do not finish the work, they will not be paid.
Workers are generally the hardest category of employment status to identify. This is because they tend to share characteristics of both self-employed and employed status. Someone would tyopically be considered a worker where: there is an obligation to provide personal service; there is mutuality of obligation; the worker is not carrying out a business and the employer is not a customer; and the individual does not otherwise meet the test for being considered an employee.
Alternatives to zero-hour contracts
Keeping zero-hours contracts under regular review is a sensible approach to avoid an individual gaining full employee status and the associated rights. For example, it may make sense to start someone on a zero-hours contract but move them onto a permanent or fixed-term contract if their hours become more regular.
There are several alternatives employers can consider to manage varying staffing requirements. Offering overtime to permanent employees is one option, ensuring experienced staff can handle temporary increases in demand. If the need for additional hours becomes more consistent, hiring a part-time employee or someone on a fixed-term contract could provide a reliable short-term solution. For businesses with predictable peaks, such as seasonal surges, annualised hours contracts allow staff to work flexibly across the year while meeting demand during busy periods. Similarly, using agency staff can be an efficient way to fill roles quickly and temporarily.
The rise of gig economy platforms has further expanded employers’ options for accessing freelance workers, particularly during seasonal peaks like the festive period. Retail and hospitality businesses increasingly rely on gig apps to find shop assistants, bar staff, and warehouse workers at short notice. These platforms offer immediate access to individuals willing to work flexibly, which can be ideal for managing fluctuating demand.
While gig app workers and zero-hours contract workers share the benefit of flexibility, there are significant differences. Zero-hours contracts typically create an ongoing employment relationship, where the individual is classed as a “worker” or sometimes an “employee” under UK law. This classification entitles them to statutory rights such as holiday pay, the National Minimum Wage, and rest breaks.
Freelance workers engaged via gig apps, however, are generally classified as self-employed. As such, they are not entitled to employment protections beyond basic rights, including health and safety provisions and protection from discrimination. Employers benefit from the lack of traditional employment obligations, but this model is not without risks. Misclassifying workers as self-employed when they operate like employees—such as being under significant control over tasks and hours—can result in legal disputes or claims for unpaid entitlements.
For employers, gig apps provide a highly flexible alternative to zero-hours contracts. However, businesses must ensure the engagement accurately reflects the worker’s legal status. Exercising too much control, such as dictating work schedules or tasks, could blur the lines of self-employment and lead to legal challenges. As employment law evolves, staying aware of these distinctions is vital to avoid compliance issues while managing workforce needs effectively.
Need assistance?
Our HR and employment law specialists advise employers on all aspects of workforce management and employee entitlements. Zero hour contracts can offer employers a number of benefits, but they require careful management to ensure individuals on zero hour contracts are given their full entitlements. To minimise legal risks while protecting your business’ commercial interests, speak to our experts today.
Zero hour contracts benefits FAQs
What is a zero-hours contract?
A zero-hours contract is an agreement where an employer does not guarantee a set number of working hours, and the worker is not obliged to accept any work offered.
What rights do zero-hours contract workers have?
Workers on zero-hours contracts are entitled to key statutory rights, including the National Minimum Wage, paid holiday, rest breaks, and protection from discrimination and whistleblowing.
Can a zero-hours worker become an employee?
If a worker regularly works set hours and the employer exercises control over their duties, they may be deemed an employee, gaining additional rights like protection from unfair dismissal and redundancy pay.
Do zero-hours workers get sick pay?
Zero-hours workers may qualify for Statutory Sick Pay (SSP) if they earn at least £123 per week and meet the eligibility criteria.
Are zero-hours workers entitled to holiday pay?
Zero-hours workers accrue holiday entitlement based on the hours they work, typically calculated as 12.07% of their total hours.
Can zero-hours workers refuse work?
Workers on zero-hours contracts are not obligated to accept work offered by the employer.
Can employers require exclusivity under a zero-hours contract?
Exclusivity clauses preventing workers from taking jobs elsewhere are unlawful in zero-hours contracts.
What happens if zero-hours workers regularly work set hours?
If the work becomes regular and predictable, employers should consider offering a part-time or permanent contract to reflect the reality of the working relationship.
How should employers manage zero-hours contracts?
Employers should use these contracts transparently, regularly review working patterns, and ensure compliance with all statutory rights.
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals
