A zero hour contract is an agreement between an employer and worker that does not provide guaranteed working hours. Zero hour contracts have emerged as common practice within sectors such as retail due to the flexibility they give to both the employer and the employee. For employers, this means workers are only paid for the hours they actually work.
Importantly, the employment contract should be clear on the individual’s employment status, since legal entitlements differ between individuals classed as workers and those classed as employees.
Zero hour contract workers still have minimum statutory rights that must be met by the employer to avoid falling foul of the law.
The following guide for employers looks at how zero hour contracts work, the pro and cons of this type of working arrangement, the employer’s responsibilities and the worker’s rights under zero hour contracts, as well as the risks to be aware of before hiring on this basis.
What does zero hour contract mean?
The expression ‘zero hour contract’ is a non-legal term that is used to describe a number of different types of casual agreements between an employer and a worker. In broad terms, a zero hour contract is one in which the undertaking to perform work is conditional upon the employer making work available, without any certainty this work will be made available.
In less technical terms, this simply means that there is no contractual obligation on the employer to provide a zero hour contract worker with a minimum number of hours’ work, or to offer that individual any work whatsoever. Equally, in the same way that the employer does not guarantee any hours of work, the worker is not legally obliged to accept any work that may be offered. The employer offers work as and when it arises, which that individual can either choose to accept or decline on any given occasion to suit their own needs.
A zero hour contract is essentially a phrase used to describe a form of casual working arrangement adopted by employers who are typically in need of a readily accessible pool of workers in response to rises and falls in customer demand. These types of contracts are not just prevalent within the gig economy, but can also be used to address seasonal demand in the retail and hospitality industries, and for temporary staff shortages throughout the year.
Pros & cons of zero hour contracts
There are various pros to zero hour contracts, although perhaps the most obvious benefit is the inherent flexibility within this type of working arrangement, for both employer and worker alike. For the employer in need of workers to meet fluctuating demand or temporary staff shortages, zero hour contracts will avoid any obligation to provide guaranteed levels of work, whilst still meeting the needs of the business. Equally, for the individual worker, a zero hour contract can provide them with greater flexibility than any other type of employment contract. In this way, an individual can often fit earning an income around other things in their lives, such as study and childcare commitments.
However, in contrast, there are also cons to the zero hour contract. For example, one of the main downsides for the employer is that because of the casual nature of this working arrangement, a worker is not actually obligated to accept the work on offer, where they can refuse to undertake work without consequence. Many workers will take the work where they can get it, for fear of not earning enough that week or, if they persistently refuse, having their contract terminated altogether. However, with the inherent flexibility within this type of contract comes a very real risk that the employer may still end up short-staffed.
A disreputable employer, one who fails to meet the basic rights of zero hour contract workers, or even to provide them with enough work each week to let them earn a decent living, will find that these workers eventually have no choice but to work elsewhere. This type of contract arrangement is not conducive to staff retention or worker loyalty.
The employer is also prohibited from stopping a zero hour contract worker from working for someone else. Very often, these types of workers will have two or more jobs with different employers, ensuring that they have sufficient work at all times. Under the Employment Rights Act (ERA) 1996, any attempt by an employer to use an exclusivity clause within the zero hour contract to seek their consent before working elsewhere, or otherwise trying to prevent a worker from taking a second job, will be unenforceable.
Additionally, provision is made under the Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015 for a worker not to be unfairly dismissed, or subjected to any detriment, for performing services for another employer in breach of any exclusivity clause. Any dismissal of the zero hour contract worker in these circumstances would be considered automatically unfair, where there is no qualifying service period, as there would be in a claim for ordinary unfair dismissal. Similarly, any detriment suffered would be unlawful. Similar provisions have recently been extended to all low-income workers under the Exclusivity Terms for Zero Hours Workers (Unenforceability and Redress) Regulations 2022.
Zero hour contract employment rights
Even though a zero hour contract is specifically designed to provide some flexibility, both for the employer and worker alike, with no strict legal requirement to provide or perform any work, this arrangement is not without important rights and responsibilities. This is because a zero hour contract worker, having accepted and performed work, will be afforded a minimum amount of protection when it comes to key statutory rights, including:
The right to be paid minimum wage
Under the National Minimum Wage Act 1998, and associated regulations, a zero hour contract worker is entitled to be paid a minimum hourly rate of pay. This means that, regardless of how many hours a worker is offered, the employer must pay them at least the National Minimum Wage (NMW) for the number of hours worked. The NMW rates from April 2022, based on the worker’s age, are as follows:
- For zero hour contract workers aged 23 and over: £9.50
- For zero hour contract workers aged 21 to 22: £9.18
- For zero hour contract workers aged 18 to 20: £6.83
- For zero hour contract workers of school leaving age up to 17: £4.81.
From April 2023, the NMW rates are due to increase to £10.42, £10.18, £7.49 and £5.28.
The right to paid holiday entitlement
Under the Working Time Regulations 1998, most workers are entitled to at least 5.6 weeks’ paid holiday per year, including zero hour contract workers, where annual leave will start to accrue as soon as an individual performs any work offered by the employer.
By law, all workers are entitled to a weeks’ pay for each week of annual leave taken, where the amount will depend on how many days they work and how they are paid for those days.
For a full time employee working fixed hours five days a week, this equates to a total of 28 days, although an employer can include bank holidays and public holidays as part of an individual’s statutory leave entitlement. Following the decision in Harpur Trust v Brazel in 2022, it is no longer allowable to calculate holiday entitlement for zero hour contract workers using the 12.07% pro-rata method.
For a zero hour contract worker, where their working pattern is not fixed, a weeks’ pay for the purposes of paid holiday entitlement will usually be based on their average pay from the previous 52 weeks. This is referred to as the holiday pay reference period.
The right to take regular rest breaks
Again, under the Working Time Regulations 1998, every worker has the right to a 20 minute rest break during their working day if they work more than 6 hours, including zero hour contract workers. This could be either a tea or lunch break, although the break does not have to be paid. This will depend on the worker’s contract.
The zero hour contract worker, as with any other regular worker, will also have the right to 11 hours rest between each working day, for example, if they finish their work at 8pm, they should not start work again until 7am the following day. Finally, the zero hour contract worker has the right to either a 24-hour break without any work each week or, alternatively, an uninterrupted 48-hours without any work each fortnight.
The right to zero hour contract sick pay
Zero-hours contract workers are eligible for Statutory Sick Pay (SSP) if they have performed some work for you, have been sick for four or more days in a row (including days off), have followed your rules for reporting sickness—or have notified you within seven days—and have made an average income of at least £123 per week (before tax) over the previous eight weeks.
There can be only one employer providing the required weekly minimum. A worker may not be qualified for SSP if they depend on various jobs to make this salary.
The SSP for zero-hours employees is £99.35 each week for a maximum of 28 weeks.
Workers are only eligible for SSP on the days they are scheduled to work; the first three days off are not included.
You’ll pay your workers according to how you normally pay them. If you pay them weekly, for instance, you will also pay their SSP weekly.
If a worker is self-employed, receiving statutory maternity pay, and has received the maximum amount of SSP (over 28 weeks), you are not required to give them SSP.
Workers may qualify as self-employed if they receive payment for each “gig” they complete, are allowed to make substitutions, are free to decide how to do their tasks, and are not required to do so, but in light of recent case law, employment status has become an area of challenge in relation to zero hour contract workers’ sick pay entitlements. Employers should take advice to ensure they are operating in accordance with the latest rulings and position for zero hour workers’ rights.
Terms to include in a zero hours contract
While each contract should be reviewed to ensure relevance and suitability for the role in question, the following are key terms to include within zero hour contracts:
Nature of work
Specify the type of contract the individual is under, ie whether they are an employee or a zero-hours worker. For example: “The Company is pleased to welcome you as a worker or employee with no hours. You are entitled to a variety of rights under this sort of work, including the national minimum pay, protection from discrimination, and rest periods.”
Also describe your agreed intention and the details of discussions during the recruitment stage. If the individual is being engaged as a worker – rather than an employee – state within the contract that the parties do not intend for an employment relationship to be created and that the individual is under no obligation to accept work that is offered. For example: “The Company is under no obligation to offer work to the employee.
“This contract will outline the essential terms established by you and the Company about the manner and timing of your work.”
How the job will be done
Detail where the individual will be working, who they will report to, and how shift notifications will be made. For example:
“Your usual place of work will be [location]. For the hours you work, you will be paid [£x] per hour, less tax and social security withholdings.
If the individual is being engaged as a worker and not employee, the contract should state that there is no continuing employment relationship between periods of work.
Pay & benefits
State what the pay and benefits of the job are. For example:
“You will get payment [monthly or weekly] on or about [described date]. Payments will be made immediately to the bank account you provide.
The following perks are yours to receive: [List of available perks]
You are entitled to a break of [x hours/x minutes] for every [x hours worked].”
If your zero hours workers are not entitled to the same as your employees working guaranteed hours, you should state this within the contract.
Specify what the individual will be entitled to in relation to paid annual leave. For example: ‘Each holiday year, you are entitled to a minimum of 5.6 weeks’ paid holiday per annum. A weeks’ pay is calculating using your average pay from the previous 52 weeks, known as ‘the holiday pay reference period’.
The holiday year will go from [x date] to [x date] inclusively each year.
[Name of your Company] will pay you at the end of each year in place of any accumulated holidays for the holiday year in which the assignment concludes.’
State the sick pay to which they are entitled and the hours and shifts to which it applies. For example: ‘If you are eligible under the law, you are entitled to Statutory Sick Pay (SSP) for the time you are ill and for the hours you have already committed to work.’
Termination and variation of contract provisions
Outline the process for terminating the contract, including any applicable notification requirements. For example, ‘Please let [specified person] know if you no longer want to work with us, and we’ll cancel your contract [with immediate effect or with a defined notice period].’
Employer risks of zero hour contracts
There are various risks associated with zero hour contracts, not least when it comes to the possibility of legal proceedings. Several cases have already been tried and tested through the courts, setting new precedents and clarifying the rights of the zero hour contract worker. However, even without the threat of further test cases, there remains a risk of getting the existing law wrong, especially around things like holiday pay calculations.
Individuals employed under a zero-hours contract might be categorised as either ’employees’ or ‘workers’.
The distinction between an employee and a worker is crucial because it establishes the rights and protections to which the person is entitled. As an employee, they will be entitled to even greater employment rights, including the right to statutory redundancy pay, and to paid statutory maternity or paternity leave. Employers who erroneously identify zero-hours personnel as workers risk legal action.
However, determining employment status might be challenging. The mere fact that the working arrangement is described by the employer as a ‘zero hour contract’, does not in itself determine the individual’s employment status. The parties’ contract will be taken into account by an employment tribunal, but it will also look at how the partnership really functions.
In some cases, depending on the working arrangement involved, the status of the zero hour contract worker may even change from ‘worker’ to ‘employee’. Employers should periodically assess the nature of the connection with zero-hours personnel since employment relationships can evolve over time.
When determining employment status, this will not only come down to contractual descriptions and terms, but also the actual nature of the working arrangement in practice.
As an example, someone who regularly works the same shifts for a continuous period of six months may be deemed an employee.
The concept of mutuality of obligation is also often crucial in assessing whether a person working under a zero-hours contract is an employee or a worker. When an employer is required to offer work and the employee is required to do the job that is provided, mutuality of obligation exists. Therefore, it is quite possible that they would be classified as an employee if the employer needs them to accept the employment that is provided to them. This would be the case if the obligation to take work was a specific part of the employment contract or if it was just accepted practice. As such, even in cases where a worker is not contractually compelled to accept all job offers, there is a chance that an employment tribunal could determine that a mutual responsibility exists and an employment relationship has been created. In this case, the worker would be considered a “employee” and would be given the necessary employment rights.
Exclusivity clauses in zero hour contracts
Exclusive terms in zero-hours contracts are prohibited under the Small Business, Enterprise and Employment Act of 2015. Exclusivity clauses had previously been used to prohibit zero hours workers from working for another employer. Employers viewed them as a practical instrument to prevent the disclosure of trade secrets and sensitive information to rivals. By granting the employee more choice over their working hours and pay, the rules were meant to solve the power disparity between the employer and the person employed under a zero hours contract.
Since the law has changed, it is now illegal to prevent zero hours workers from working for another company, and any attempts to do so would be unenforceable. Since then, more rules have taken effect, granting people the right to compensation and the right not to be unfairly dismissed or treated poorly for breaking an exclusivity restriction.
As such, zero hours contrasts cannot contain any exclusivity provision. Reviewing confidentiality provisions and any restrictive covenants may be prudent to provide proper protection of company interests, depending on the nature of the enterprise and the threats posed by rivals.
Zero hours holiday pay
In the context of paid holiday entitlement, if you fail to provide the zero hour contract worker with the correct amount of annual leave, paid at the correct rate, this may result in costly legal proceedings. Each time a worker takes holiday but is unpaid or underpaid for that time off work, they are entitled to bring a claim for either breach of contract or an unlawful deduction of wages under the protection of wages provisions of the ERA. Equally, where there is more than one deduction, a claim could be made in respect of the series of deductions, with each non-payment or underpayment being one unlawful deduction in a series. This can soon add up if this continues over a prolonged period of time.
In the context of minimum wage claims, again the zero hour contract worker could lodge a complaint before the employment tribunal, although they also have the right to refer the matter to HMRC, who can send the employer a notice for the arrears, together with a fine. HMRC can also take an employer to court on behalf of the worker for any refusal to pay.
Best practice advice for employers using zero hours contracts
Zero hour contracts are not necessarily an arrangement to be avoided, where the benefits of these types of contracts, especially the flexibility that they can offer, can help a business develop and grow. However, the rules relating to zero hour contract workers can often be complex, especially when it comes to things like paid holiday calculations. By seeking expert legal advice from an employment law specialist in the event of any dispute, this can help to ensure that the worker’s rights are met, reducing the potential for costly litigation.
It is also important for employers to carefully set out a worker’s entitlements in a clear and transparent way, within a written contract, so that the individual can fully understand their rights and what the implications of such a contract means to them. In this way, the worker will know where they stand, and they can make an informed choice as to whether this arrangement is likely to work well for them, again minimising the possibility of disputes.
When used properly and appropriately, zero hour contracts can serve both the employer and worker well. However, they should never usually be considered as a core working arrangement for all members of staff, nor as an alternative to proper business planning, especially where the job offered will mean that someone will work regular hours over a continuous period of time. Importantly, zero hour contracts do not mean that employers can avoid their responsibilities, where all staff, regardless of their contract, are still entitled to certain employment rights and must be treated fairly within the parameters of the law.
Alternative contract types to zero hours
Before adopting zero hour contracts, employers should fully consider their resourcing needs:
- What is the type of work on offer – what are the required skills, knowledge, experience to perform the role?
- Can existing personnel cover or take on the requirements in addition to their responsibilities?
- Is the role’s workload unpredictable or changeable?
- Will the workload change regularly or infrequently?
As well as the need, also consider the available types of working arrangement such as:
- Part-time, permanent contracts, eg where there is a consistent need for a few hours of employment every week.
- Paid overtime for permanent personnel as a solution to cover peak times if the workload is unpredictable or changeable.
- Fiixed-term contract to cover resourcing demands for part of the year, allowing flexibility to change to a permanent solution.
- Annualised hours – to cover workload that varies, with hours being worked during busy times and less hours worked during down time.
- Agency workers – a short-term solution to meet immediate demands, though this typically carries higher costs than hiring directly. Note however that any agency employee working for an organisation for more than 12 consecutive weeks are entitled to the same benefits as permanent employees.
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 zero hour contract workers are given their full entitlements. To minimise legal risks while protecting your business’ commercial interests, speak to our experts today.
Hiring Zero Hour Contract Workers FAQs
What are an employee's rights on a zero hour contract?
Zero hour contract workers are entitled to the National Minimum Wage and to statutory annual leave. They are also entitled to take on additional jobs and cannot be prohibited for taking on additional employment.
What are the advantages of a zero hour contract?
Zero hour contracts provide flexibility for both the employer and the worker. They also allow the employer to avoid unnecessary employment costs by matching labour to actual demand.
Why do companies use zero hour contracts?
Zero hour contracts allow employers to respond to changes in the need for labour by adjusting the number of working hours to meet the actual need of the business, typically at short notice.
What is meant by zero hour contract?
A zero hour contract is a type of working arrangement in which the employer is not obligated to provide any work but, equally, the worker is not obligated to perform any work. The worker can accept or decline work offered.
Is a 0 hour contract good?
There are both benefits and drawbacks to a 0-hour contract arrangement. It can offer flexibility for both the employer and worker alike, but it can also leave workers struggling to earn a living if regular work is not on offer.
What are the disadvantages of a zero hour contract?
The main disadvantages of a zero hour contract is that a worker is not obligated to accept the work on offer and they cannot be prevented from working for someone else. This means that an employer may end up short-staffed.
Are zero hour contracts illegal in the UK?
Zero hour contracts are not illegal in the UK, although it is unlawful for an employer not to meet the worker’s basic statutory rights, such as paying minimum wage and providing the worker with paid annual leave entitlement.
Last updated: 11 November 2022