Zero hours contracts have been in the news but what are they and what are the pros and cons for employers?
There is no specific legal definition of a "zero hours contract", but it is generally used to mean an arrangement under which the employer does not guarantee to provide work (the employee has no set minimum hours) and only pays the worker for hours actually worked. The worker usually does not have to accept any work offered, but must carry out the work if they accept.
Zero hours contracts can therefore be used to create a pool of workers who are 'on call', for example, for unexpected surges in work, to cover for specialist staff (who may be on leave or ill) or for on-call work such as care work, instead of having to take on fixed-contract employees or agency workers.
Most zero hours contracts give staff "worker" status, so they are entitled to rest breaks, annual holiday, sick pay and - importantly - the National Minimum Wage. They do not have "employee" status, which carries further rights such as entitlement to claim for unfair dismissal, maternity pay and leave, to request flexible working, statutory minimum notice periods and redundancy payments.
However, if the contract provides that the worker must work a fixed number of hours, must be available for work whenever they are offered it (and cannot therefore work for anyone else too), if the worker has a reasonable expectation of regular work, if the organisation exercises a high level of control over the individual when they are working or if the employee can be disciplined (or subjected to some other sanction) if they refuse work, this can mean that they are employees, with full employee rights.
Where an individual is entitled to holiday pay or the auto-enrolment pension rules apply, it can be difficult to determine a zero hours contract worker's entitlement under these regimes.
It's also important that practice matches details within the contract. In a recent legal case, an employee's hours were stated to be only those specified by his line manager each week, but in fact he had worked a 48-hour week for two years. When his hours were reduced he claimed constructive unfair dismissal. His employer argued that there was no legal obligation to provide him with work, so he was on a zero hours contract - was a worker, not an employee - and could not claim for unfair dismissal.
The Employment Appeal Tribunal (EAT) said that the true agreement, worked out from the evidence as a whole, was that the employee was contractually entitled to work for 48 hours per week. The EAT remitted the case back to the Employment Tribunal to decide whether the failure to provide 48 hours of work amounted to an unfair constructive dismissal.
Zero hours contract workers have the same right to a 20-minute break in every six hours worked, 11 hours' uninterrupted rest in every 24-hour period and 24 uninterrupted hours in every seven-day period as other workers.
Also, like other workers, they are not allowed to work more than 48 hours per week unless they have contracted out of that requirement.
Zero hours contract workers have the same right to 28 days' annual leave (including bank holidays) although this is pro rata (based on the average number of days they work per week).
They must also be paid statutory sick pay from the fourth day of their sickness absence, if they have been ill for at least four days and their average weekly earnings over the previous eight weeks are less than the lower earnings limit (£120 per week in 2021/22) in the last eight weeks.
The National Living Wage or National Minimum Wage must be paid to zero hours contract workers who are on your work premises, even if they are only there waiting to be allocated work. Whatever work is allocated, they must be paid the same hourly rate as other workers doing that work.
The National Living Wage applies to all workers aged 23 and over and is £8.91 an hour. The National Minimum Wage applies to all other workers and must be paid at a rate of £8.36 an hour for those over 21 and under 23; £6.56 for 18-20 year olds; £4.62 an hour for 16-17 year olds; and £4.30 for apprentices under 19 or older than this but in the first year of their apprenticeship. After this, apprentices must be paid the rate applicable to their age. These rates apply from 1 April 2021 (lower rates applied before this date).
Discrimination laws also protect zero hours workers. Employers whose zero hours workers are generally of a particular age, sex or race (or any other protected characteristic) should ensure that any additional contractual rights enjoyed by permanent workers are also given to zero hours contract workers (or risk discrimination claims).
The Government plans to review the use of zero hours contracts, although it has indicated that it is unlikely to ban them because they can be useful to both employers and employees. In the meantime, employers should monitor their arrangements with zero hour contract workers - not just what is in the paperwork, but what is actually happening on the ground - to ensure that they do not create an expectation among their zero hours contract workers that they will be offered a specific number of hours work each week.
Browse topics: Employment law