Zero hours contracts have recently excited a great deal of comment – both for and against. A recent CIPD survey estimated that there are currently around one million people in Great Britain working on a zero hours basis and that 65% of them are happy with their work‑life balance, compared with 58% of their full‑time colleagues.
Leading the charge against zero hours contracts TUC General Secretary, Frances O’Grady, commented:
“Whilst not every employee on a zero hours contract is exploited, this survey shows that job insecurity and low pay are concerns for a significant number of workers, including white collar staff”.
Leading the charge in favour was Steve Radley of the EEF who commented:
“The debate on zero hours contracts has become unbalanced and needs greater focus on the benefits it could bring to both workers and employers”. With skills in scarce supply, zero hours contracts help employers to tap into specialist skills when they are needed, to draw on the experience of older workers”.
Employers – particularly those in hospitality and retailing – might be forgiven for thinking that zero hours contracts are the panacea to all employment ills, offering the prospect of employees available “on demand”, with zero employer commitment and zero bureaucratic burden.
By contrast, employees might be forgiven for thinking that zero hours contracts represent a return to the days of dastardly Victorian mill owners. Do they really threaten a world of zero rights and minimal pay, and presage a return to stuffing little boys up chimneys?
Let’s assume that as an employer you are in favour. Are they simple to implement and operate?
A zero hours contract can be one of two different things; it might refer to an employment contract under which an employee has no fixed hours and is paid only for hours worked. But it can also refer to an umbrella contract under which there are brief employment assignments, but no continuity of service.
The distinction is important. In the first scenario the individual will be an employee. In the second he or she will merely be a “worker”.
And the practical difference? Put simply, a worker doesn’t have unfair dismissal rights, maternity rights, and paternity rights.
That might be viewed by an employer as useful. But whether an individual is an employee or a worker that person will still have:
§ the right to paid holiday
§ the right to participate in the new auto-enrolment pensions, and
§ the right to allege that he or she has been the victim of discrimination.
Let’s look at those three issues in turn.
Holiday pay – the difficulty for employers is administrative. The challenge is working out the entitlement to statutory holiday pay against the background of irregular or unpredictable hours. Most employers are familiar with the task of calculating holiday pay by taking an average of the previous 12 working weeks’ pay. But in the case of individuals working on zero hours contracts any “zero pay” weeks are left out of account. And, in contrast to individuals with normal working hours, the calculation must include overtime and bonuses paid during those 12 working weeks.
To compound the matter, the amount of pro‑rated holiday entitlement requires the employer to look backwards over the year. In the case of individuals on zero hours contracts this is likely to require either a good supply of paracetamol or sophisticated administrative records which track holiday accrual and holiday pay.
Pensions auto‑enrolment – the arrival of auto‑enrolment has brought with it new problems. In the case of zero hours workers, their pay dates may not match the usual reference period used to assess auto‑enrolment. It could be difficult to work out when an individual has earned enough to trigger the auto‑enrolment obligation.
And the employer must be alert to the risk that, following enrolment, earnings under a zero hours arrangement will fall below the threshold. Subsequent deductions would not be permitted by auto‑enrolment legislation.
Employers who make heavy use of zero hours contracts will need sophisticated payroll software to avoid unauthorised deductions, or will have to make it a contractual requirement that all employees are enrolled. The latter is unlikely to be popular with those on zero hours contracts who tend to have a lower overall income. And even a contractual obligation to join the employer’s pension scheme is vulnerable to be overridden by the new opt‑out rights within the auto‑enrolment rules.
Zero hours employment and pension auto‑enrolment are about as compatible as oil and water.
Discrimination – as we’ve seen, if a zero hours arrangement is successful in classifying an individual as a worker then the possibility of an unfair dismissal claim will be avoided. However, an individual working on a zero hours contract will, for example, still enjoy the protection afforded to part‑time workers.
Employers might be tempted not to offer zero hours workers the same benefits offered to those with normal working hours – for example, private healthcare, travel allowances, more generous pension arrangements, and so on. But if the decision to deny those benefits cannot be objectively justified then it may fall foul of the legislation protecting part‑time workers from less favourable treatment.
To make matters worse, in industries where individuals working on zero hours contracts belong predominantly to one particular gender, there is the additional risk of an indirect discrimination claim. Though the evidence is essentially anecdotal, it would appear that women (and young people) predominate amongst those working on zero hours contracts.
So are zero hours contracts simple to implement and operate? They are certainly not for the faint-hearted – or for those employers with a cavalier attitude to paperwork. But properly implemented and managed the benefits to the employer are clear.
And the benefits to the individual? Remember, the CIPD survey suggested that those on zero hours contracts are generally happy.
Maybe the last word on the subject should be left to the Joseph Rowntree Foundation. At the beginning of December, they published research revealing that just over half of the 13 million people in the UK judged to be living in poverty come not from the ranks of the unemployed but from working families – adding that low pay and part‑time work (of which zero hours contracts are a species) had prompted an unprecedented fall in living standards. A sobering thought.
By Richard Parr – Partner