What are ZERO-Hours CONTRACT? Definition, Advantages & Disadvantages

Overview:

Till June 2024 more than a million people are employed under zero-hours contract. (Source: the House of Commons Library). So, what is all the fuss about it? Is it really that important to understand?

The one-word answer is “YES”

If you are here then You might’ve heard about zero-hours contract possible ban, or if you are a student of CIPD, HR, or L&D then you DEFINITELY have heard about it or its controversies. These contracts might be banned in the Employment Rights Bill 2024-25, As these are considered “Exploitative”.

But what are they?

Why should I care?

Be calm, and you’ll get all your answers right here in this post. So, if you don’t know what is a zero-hour contract, or anything about it, this guide will help you a lot. So, let’s jump right into it.

Zero-Hours Contract Meaning:

Zero-Hours contract or casual contracts are agreements where the employers do not guarantee minimum working hours for the employees and the workers are not bound to do the work when asked.

It is a beneficial option for both employer and the employee because of its flexibility.

For Employer: The employer can get the tasks done with the high demand, without even have to assign or committing to minimum working hours.

For Employee: They have more flexibility for other tasks and only have to work when required. And the employees don’t even have to accept every task assigned.

Zero-hours contract are usually ‘Piece Work’ or ‘On Call’ work.These contracts are common in multiple fields like retail and hospital etc.

As per the law, the employer cannot stop the worker from working elsewhere. And according to the law the workers have the right to ignore a clause in their contract if they restrict them from

1. Finding work
2. Accepting job opportunities from other employers.

Zero-Hours Contract Example:

Organisations or individual employers hire workforce on zero-hours contract for multiple job roles in multiple fields and sectors such as:

1. Care Work
2. Delivery Driving
3. Warehouse Work
4. Hospitality work
5. Casual Hours Work (Like students who can work just for some hours, or on holidays).
6. Bank work
7. Gig economy work (Giving car rides or takeaway food). These are the examples of Zero-hours contract.

As per the stats in 2024 the food sector and the accommodation has the highest number of zero-hours contracts employed which is 32.2%, While healthcare is at second position with16% and public administration is at third position with just above 2%. (Source: Statista).

There are numerous big names that use zero-hours contract like Burger’s King, Amazon, and McDonald’s. And in the UK some big names that use this contract are DHL, Uber, and Sports Direct.

So, now that you’ve understood the meaning of zero-hours contract and its examples let’s move onto the rights of employees under the employment agreement.

Employee Rights under Zero-hours Contract:

If anyone is working under zero-hours contract, then they are legally classed as workers or employee. This is the employment status of the worker under a zero-hours contract. The rights of the worker are considered as per the employment status and not as per the different types of contracts like zero-hours contract.

The Rights of Employee Under Zero-Hours Contract:

Under the Employment Rights Act 1996 employees have multiple rights including.

1. Rests Break
2. Holiday and Pay for Holiday
3. Minimum Wage and Living Wage
4. Pay Slips
5. Protection from any kind of discrimination.

These are the basic rights, the complete list of employment rights for the employees are below.

Detriment and Dismissal of Requests of Employees or Workers:

The employer cannot cause you detriment on asking to fulfill your legal rights. Detriment means that you experience bullying or harassment, the employer turns down your request without any strong reason, the Employer overlooks your performance and does not consider you for promotions or development opportunities. Or even if the employer reduces your hours without any certain or clear reason than this is detriment.

As per the law if you are classed as an employee (Which you are in the case of Zero-hours contract) then the employer can’t dismiss your requests made for fulfilling employee rights.

Important Note:

If you are classed as a worker than you aren’t able to claim the unfair dismissal of contract. But in some cases you might be able to call the dismissal of your contract as a detriment. But this is a really crucial part of the law, and you should seek legal advice from an expert to understand it better.

Employee Can Work for More Than One Employer:

As per the Employment Rights Bill 1996 the workers under zero-hours contract can work for more than one employers at a time. And the employer doesn’t have the right to stop or restrict you from working with another employer. Your employer doesn’t have the right to dismiss you for working for other employer. Or can’t favor you less because you work for other employers too, which can be considered as a detriment.

It is crucial for the employee to know that even if the employer has this kind of clauses in their contracts, then, employees can ignore them. Because it is totally against the law to add or enforce a clause to restrict you for working for another employer.

Employment Contract Ends:

It is crucial for the employee to know about their contract of which type of contract they have. Because there could be short-term and long-term both zero-hour contracts. And in both cases if the employment contracts end then the employer should pay you accordingly. Like

1. The holiday you have but not taken or you aren’t paid for that.
2. Good wages and notice pay that too only when you are legally classed as an employee and working for an employer for over a month and if the contract says so.

Notice Period:

If you are classed as a worker, then by law there is no specific requirement for the employer or for the employee to give notice. So, if an employer needs notice period from you then they have to ask for it via written statement. And that is the reason why the employee should read the contract carefully to understand and learn anything about the notice period.

While in the notice period the arrangements for your working should be same like before while a regular worker. Which are,

1. Your employer is not bound to give you minimum working hours.
2. The employee is not bound to accept any work offered.

Redundancy Pay:

The hourly staff becomes eligible for redundancy pay when they have worked for over 2 years with an employer. The redundancy pay in the zero-hour contract is calculated according to the length and as per the weekly wage with a maximum number of £538.

Paternity and Maternity Leaves:

For paternity and maternity leaves it is important for the employee to be at least earning the amount of £112 per week. That too continuously for at least26 weeks from the 15th week when the baby is due.

For seven consecutive days from Sunday to Saturday if the employee doesn’t receive the shifts then it is considered as breaks. So, it is important to understand that if an employee is on breaks during a certain time period of the pregnancy than they are not eligible for the maternity and paternity leaves.

Rest Breaks:

The employee working on zero-hours contract can get one uninterrupted break of twenty minutes every six hours.

Sick Pay:

There are several limited conditions for the hourly staff to get sick leaves. Firstly, they can only request for the sick leaves on the days when they are about to work and not on offs. Also, they must have earned around the amount of average £120 a week, that too before tax, in the past two months (Eight Weeks).

Holiday Pay:

All workers are eligible for holiday pay even the ones with the casual contracts. And the employees can also take annual leaves from the first day of their employment.

Continuous Employment Right:

If the employee works for an employer consistently for over two years without breaks than the employee secures more rights. Like after two years of service employee can claim unfair dismissal. But it is important to know about breaks.

If an employee doesn’t get any work to do for a whole week (7-days) then it is considered as break. There are multiple other things to consider like it’ll become confusing if the employee works under short term contracts for the employer. Or when the employee leaves the job but returns to it. But in some cases it might not count as breaks like when the employee is on off to work because of the sickness or injury for around 26 weeks. Or if the employee and the employer have an agreement for a career break. If you are unclear about the employment status, then you should talk to the employer.

Best Practice For Employers:

The employer who is considering to use a zero-hours contract and hire employees on this contract, should make it clear to the employees that:

1. There is no guarantee of work and the contract can end-up quickly.
2. The worker isn’t bound to accept every task offered, they can choose as per their availability and the complexity of the task etc.
3. A fair and transparent process of consideration will take place of the current situation before assigning a task.

Employers should be clear about the policy for cancellation, Notice period or any compensation or benefits.

Ideal Time to Use Zero-Hours Contract:

Zero-hours contract will be ideal to use when:

1. The demand for work changes every week or in a short span of time.
2. The employer or the worker needs flexibility because of their study or family issue like childcare.
3. When starting a new business, it would be best to hire employees under a zero-hours contract.

Now that you’ve understood almost every concept about zero-hours contracts. So, let’s go through its advantages and disadvantages.

Zero-Hours Contract Advantages:

Here are the advantages of zero-hours contracts.

Flexibility:

The main advantage of zero-hours contracts is flexibility, as it helps both employers and employees because the employees or workers can work according to their availability and priority. While for the employer they can get the work done for the urgent demand. And because the employee or worker don’t have to accept every work offered. And they aren’t even bound NOT to work for anyone else. So, they have all the freedom to do what they want while getting the employee benefits.

Cost-Effective:

It is a cost-effective solution for the employer as they don’t have to bear the expenses of the employee or worker, they just have to assign unplanned or sudden work. From health insurance to pensions or other benefits, they don’t have to provide the benefits, but only which are applicable by law, like sick leaves, rest, etc.

Handle The Emergency Work:

For businesses that have to manage unpredictable work with increased demand, it is the best option to have a backup force that can get the task done on demand. From the retail industry to hospitals, this is very beneficial for handling emergency requirements.

Work-life Balance:

Zero-hours contract employees or workers report better work-life balance and better job satisfaction, too. This shows how flexible this option is for both employees and the employer. Employees that are working under the zero-hours contract have better balance in their life. And especially for students who are studying and doing work for an employee or organization, they get the time to study and manage even their assignments and prepare for exams while having the support of a job.

Ideal Compensation:

Employees or workers on zero-hours contracts get ideal compensation. As they get compensation as per the hours they worked, which is the direct payment of their effort. Because the workers aren’t bound, they can easily find other opportunities. Or work for other employees to get extra income, and they even have the benefit of ignoring the law or clause in the contract that restricts them from working for someone else.

Options for Full-Time Employment:

While working in a zero-hours contract, employees or workers can still do full-time employment, as they can by law do full-time employment for other employers or organizations. This is a big benefit for workers, Employers usually hires the Top-performance employers permanently; this makes it beneficial for both employers and employees. Because with this the employer can make informed decisions and scale up the team when they want.

Employees or workers use zero-hours contracts as the gateway for future opportunities. And most of the ones with the first job it is an ideal opportunity, as they can advance in the field with ease.

Opportunities for Growth in The Field:

For the employees who are struggling to enter the field, a Zero-hours contract can be a game changer for them. As they can get practical experience and understanding of the work and can also enhance their working knowledge and implement their skills and even go for full-time employment and long-term contracts.

Simplicity and Convenience:

Zero-hours contracts reduce the management burden and minimizes the requirement of administration, which gives more convenience and helps in saving cost while getting the work done when needed.

Zero-Hours Contract Disadvantages:

Staff Turnover:

Most of the zero-hours contract employees consider it as a temporary job; that is the reason why the employees stay less with the employer, which increases the turnover and lack of connection between the employer and the employee.

Unpredictability:

Unpredictability is another drawback Because the employees don’t know how many hours they’ll be working, which makes it difficult sometimes to estimate and manage the financials. Also, the uncertainty is in both sides, As the employers might have to hire a lot of people quickly or even reduce the hours as per the situation.

Insecurity of Job:

Just right in the above paragraph, I mentioned how the employers have to increase or cut down the resources as per the situation. And because it isn’t a permanent contract. So, many of the worker an employees feel insecure about their job and usually tries to find permanent employment. And also the employer is not bound to provide some specific work even in a week. So, this can cause financial problems for the workers. And to tackle that the employees usually do multiple jobs at a time, which is definitely a tiring task.

Limited Benefits:

With the benefit of flexibility, the disadvantage of limited benefits comes along. As, these aren’t permanent positions, So, the employers don’t have to give these workers or employees the same benefits as they have to for the permanent ones like health insurance and passion etc.

Unpredictable Income:

One of the biggest disadvantage is that there is no guarantee that you’ll earn a certain amount, which might cause financial troubles for the employee. And even if they manage several zero-hours contracts jobs. Then have to be present at the short notice. And managing everything might be a little tough as well.

Conclusion:

Zero-hours contracts are employment agreements where the employer doesn’t guarantee specific minimum working hours, and the employees don’t have to accept every task that is offered. This gives flexibility for both employees and employers. But with disadvantages like unpredictability, insecurity of job, and high staff turn-over.

FAQs

Is a zero-hours contract permanent?

Azero-hours contract can be permanent agreement, but it depends on certain factors like employee, employer, situation and the agreement between employer and employee.

Do you get paid holiday on a zero-hour contract?

Employees under zero-hours contract are considered as part-time employees under the 1998 law of working regulations. And that is why they are entitled as pro rata holiday pay.

Pro rata means that if a full-time employer works 40 hours a week and gets 30 paid leaves, Then the part-time employees who works 20 hours a week will get 15 paid leaves.

What are the benefits of zero hour contracts to employers?

These are the benefits of zero-hours contract for employers:

1. Flexibility
2. Cost-Effective
3. Can Manage unpredicted demand.

What is a zero-hours contract example?

The examples of zero-hours contract example can be:

1. Hospitality Work
2. Bank Work
3. Care work
4. Warehouse work

How does zero-hours deferent from fixed-term contracts?

Fixed-term contracts are different from zero-hours contracts as in fixed-term contracts, the employer has to give minimum hours required to the employee, no matter that the requirements are either high or low. And the employer has to pay the promised salary. In a zero-hours contract, there is no mentioned salary, and the employer doesn’t have to provide minimum hours. While the employee doesn’t have to accept every task.

How does it is different from part-time contracts?

Part-Time employees are considered as regular/permanent employees that is why their benefits and rights are same as the regular employee. Also, there is a set number of hours and salary on which both employer and the employee agreed upon. While in zero-hours contract the benefits are less for employee and there isn’t any certain hours or salary fixed.

What does the government is planning to do with this type of contract?

The government of UK is planning to ban this contract in the upcoming employment rights bill 2024-2025, Because it is considered as ‘exploitative’

What does the trade unions have to say on this type of contract?

There are both advantages and disadvantages of zero-hours contract. And many unions expressed their concerns by considering it as an exploitative contract for both employee and employers. Although, it is a controversial issue and the government might take necessary actions accordingly.

Am I eligible for pension on a zero-hours contract?

The entitlement of pensions depends on the earnings and not on the type of contract of the employee. To be eligible for person there are some requirements like:

1. You have to be over 22.
2. Work in the UK under a contract
3. The employee should be earning above the ‘qualified earning’ (Qualified earning is £10k a year or according to the pro data amount of the working hours of the worker)

What is the termination process of a zero-hours contract?

Those who are working under zero-hours have no rights for the notice period. This clearly means that you can leave the job whenever you want without giving any prior notice. But keep in mind that the employer can also dismiss you without giving any notice or warning.

Sources:

• https://cipdassignmenthelp.co.uk/benefits-of-zero-hour-contracts/
• https://www.moonworkers.co.uk/blog/the-pros-and-cons-of-zero-hour-contracts#:~:text=For%20employees%2C%20this%20type%20of,of%20by%20unfair%20working%20practices.
• https://www.statista.com/statistics/407833/share-zero-hour-contracts-industry/#:~:text=Percentage%20of%20employees%20on%20zero%2Dhours%20contracts%20UK%202024%2C%20by%20industry&text=In%202024%2C%2032.2%20percent%20of,on%20a%20zero%2Dhours%20arrangement.
• https://commonslibrary.parliament.uk/research-briefings/sn06553/#:~:text=How%20many%20people%20have%20zero,lower%20opportunities%20for%20career%20progression
• https://www.goodhousekeeping.com/uk/consumer-advice/consumer-rights/a38103417/zero-hour-contract/
• https://www.acas.org.uk/zero-hours-contracts
• https://www.gov.uk/contract-types-and-employer-responsibilities/zero-hour-contracts
• https://iasservices.org.uk/zero-hour-contract/

Author Bio:

David Smith is a 28-year-old CIPD level 7 qualified with more than three years of practical experience in the field. He currently teaches students about different areas of CIPD and contributes to the research and innovation community of CIPD. He also provides valuable tips to students who are searching for CIPD Assignment Writing Help or assistance for different tasks to get them done proficiently. David also has a reputable profile and a tremendous track record of guiding students towards the best approaches.