Zero-hours employment contracts have garnered much negative press over the years, with many arguing they are exploitative and offer employees little security in an ever-turbulent employment market.
However, some employers find such contracts beneficial for managing fluctuating workloads or seasonal peaks. Equally, there are many personnel who appreciate the flexibility that a zero-hours contract can offer them with regard to study or childcare. So, is the furore merely just a matter of misunderstanding exactly what employing staff on a zero-hours contract means in practice?
What is a zero-hours contract?
A zero-hours contract is a non-legal term for an agreement between two parties through which one is asked to undertake work for the other but with no set minimum number of contractual hours.
While considered an atypical type of working, zero-hours contracts still need to set out the employment status, rights and obligations of those undertaking the work, as would normally be found in more traditional contracts.
Zero-hours contracts must state what the individual will get paid if they do work, and what will happen should they turn down any work offered, if indeed that is an option (some will be obliged to always accept).
Often the payment arrangements and/or benefits will differ for those doing the same job on contracted guaranteed hours. But that is not to say that those employed on zero-hours contracts have no rights, as in fact the matter formed a fundamental part of the independent review of Modern Working Practices back in 2017.
What rights do people have?
Those with zero-hours contracts have several basic entitlements under UK law:
- Individuals over 23 years are entitled to the National Living Wage, while those under 23 are eligible to the National Minimum Wage.
- Most people on a zero-hours contract are entitled to Statutory Sick Pay (SSP) so long as they meet certain criteria, such as whether they have previously worked for the employer, and whether they have earned at least £120 per week for the past eight weeks.
- Individuals engaged under zero-hours contracts are entitled to the same rest breaks and days as other employees.
Alongside these rights, in 2015, the Small Business, Enterprise and Employment Act declared it illegal to include exclusivity clauses in zero-hours contracts, meaning employers cannot prevent those with zero-hours contracts from also gaining employment elsewhere. This ensures that even if staff feel they are not being given enough hours on their existing zero-hours contract, they can proactively seek additional income with another employer.
Most recently, a landmark ruling by the Supreme Court made clear that any employee or worker in the UK who has a permanent contract but works part of the year such as those on zero-hours contracts is entitled to 5.6 weeks’ annual leave. In addition:
- The amount of leave cannot be pro-rated based on the portion of the year when work is actually done;
- Annual leave must be calculated and paid using the method set out in the Employment Rights Act 1996 (ERA);
- The average earnings of those on zero-hours contracts (over the previous 52-week period) must be used to calculate holiday pay.
It should be noted that when calculating pay for these individuals, if there are any weeks within the 52 weeks prior to the period of leave in which the individual did not work and therefore did not earn anything, the employer must discount this and go back further to calculate pay based on the 52 weeks prior to leave in which the individual worked.
Employment status
There are three main types of employment status: employee, worker and self-employed. Those on zero-hours contracts may be classed as either ‘employees’ or ‘workers’ in terms of their legal rights, but which they are will depend on what their contract says and how the working relationship functions in practice.
If the work is more casual, irregular and less structured, you are not offered regular hours by your employer and you have very little obligation to make yourself available for work, then you are likely a ‘worker’.
‘Employees’, however, are required to work regularly, cannot refuse to do the work given to them, and can reasonably expect regular work.
Generally, those on zero-hours contracts are most often classed as workers because there is no mutuality of obligation.
Employers need to be clear about which category zero-hours contractors belong to and consider the rights they will subsequently be entitled to.
For example, workers are not eligible to take or receive maternity or paternity leave/pay, any other type of leave/pay related to family leave (such as shared parental pay) or request flexible working, whereas employees are, along with:
- Time off for dependants
- Time off for public duties
- Redundancy pay after two years’ continuous service
The majority of workers are not entitled to receive sick pay, however, it should be noted than, when considering eligibility for sick pay, the regulations refer to ‘qualifying employees’. This has a much wider definition in this context than usual employment status tests, and therefore workers may qualify for sick pay in some cases.
Workers, similarly to employees, do have legal protection against experiencing any ‘detriment’ should they be marginalised or treated unfairly upon reporting any health and safety concerns, as well as protection against discrimination. However, in addition, an employee would also have protection against unfair dismissal if they have worked for the same employer for two years and have resigned in response to either of the above.
While zero-hours contracts have become increasingly popular as business owners look to reduce their costs and improve agility in an ever more challenging commercial environment, it is important to fully consider how working in this way will impact long-term sustainability and stability. After all, it does not lend itself well to succession planning, particularly in a small business setting.
- Tina Chander is the head of employment law at Midlands law firm, Wright Hassall.
