As an employer, you may want to use a zero-hours contract for some workers.
Since legal entitlements change between individuals, the contract should always be explicit about the individual's employment status.
If you neglect legal responsibilities under this casual contract, you could be taken to an employment tribunal.
In this guide, we'll explain what zero-hours contracts are, why they're used, and how to draft one.
What are zero-hours contracts?
A zero-hours contract is an agreement where an employer doesn't promise contracted hours of employment.
The contract will specify working hours and salary the individual will get. As well as what will happen if the worker declines their work.
Businesses must ensure they clearly define the employment status. This also includes the person’s rights and duties.
When are zero-hours contracts used?
There are so many examples where you might use a zero-hours contract. For example:
When a new business starts, it may be necessary to create a client base before beginning operations.
To manage unpredictable demands, you may need to hire people on zero-hours contracts in addition to permanent employees.
Seasonal work or demand peaks, where you know that you'll need more workers for a short period of time to finish the job.
Examples of this are retail sales during Christmas. Or requiring a cleaning service after a New Year celebration.
You might need to hire them for unexpected staff sicknesses. Here, you could have an established list of potential experienced workers you can contact. For example, like a pharmacist at a chemist.
During gig events, you might need to hire skilled and experienced workers who are comfortable with the job. For example, hiring bar staff to work at a wedding venue.
You might be thinking of trying out a brand-new product or service that you want to offer in the future.
Before deciding to roll out the service, you need staff on an ad-hoc basis to test it and see if it needs iteration. In this scenario, a zero-hours contract could be a suitable working arrangement.
Keep in mind that some jobs are affected by external factors beyond the employer’s control. This can be the case in some industries like hospitality, leisure, and catering.
When are zero-hours contracts inappropriate?
Zero-hours contracts shouldn't be used as an alternative to proper business planning. They shouldn’t be used as a long-term solution if they aren't justifiable. Such contracts are rarely suited for running the core business.
In general, zero-hours contracts are not appropriate in the following situations:
- If the job requires the individual to work regular hours over a prolonged period.
- If you want to avoid being held accountable for staff employment rights.
For companies that provide regular services and have a predictable work schedule, fixed-hour contracts may be better suited.
Alternatives to zero-hours contracts
As an employer, you should look at whether other working arrangements have the same benefits as a zero-hours contract.
Depending on your business needs, alternatives can include:
- Offering overtime to your permanent staff: If you want your experienced team to stay and handle slight fluctuations in demand.
- Hiring a part-time employee or someone on a fixed-term contract: If you need people to work regular hours to accommodate a change.
- Hiring agency workers: If you need staff temporarily or at short notice.
- Offering annualised hours contracts: If you've identified demand peaks over the course of a year.
What is the UK law on zero-hours contracts?
There are so many laws in the UK which are applicable to zero-hours contract workers. For example:
- Health and Safety at Work Act 1974: Oversee the health and safety of workers on a zero-hours contract. They must be cared for exactly like all other employees.
- The Working Time Regulations 1998: Workers on zero-hours contracts or those working flexible schedules are legally entitled to a minimum of 5.6 weeks of paid leave each year.
- Small Business, Enterprise and Employment Act 2015: Avoid preventing zero-hours staff from working for another employer.
- The Exclusivity Terms in Zero-hours Contracts Regulations 2015: Prevents zero-hours contract workers from only receiving jobs from one workplace.
Statutory rights for zero-hours contract workers
People with zero-hours contracts may be classified as either workers or employees. Despite their employment status or contractual terms, they are entitled to:
- National Minimum Wage and National Living Wage.
- Paid holiday.
- Rest breaks.
- Protection from discrimination, bullying, or harassment
Zero-hours contract and statutory sick pay
Zero-hours contract workers can receive sick pay, if they class as an employee. They need to meet certain requirements first. Like:
- Before taking a leave of absence, they must have completed contractual work for their employer.
- They’ve been ill for four consecutive days.
- They earned more than £123 per week on average for the past eight weeks.
Zero-hours contract holiday pay entitlement
Annual leave for workers on zero-hours contracts will start to build up as soon as they start working.
Their first year paid holiday entitlement accrues in the same way as full-time employees. This is accrued monthly in advance at a rate equal to one-twelfth of their annual entitlement.
They'll only be eligible for part of their total annual leave entitlement if they started their job part way through a pre-set leave year.
You can count bank holidays and public holidays as part of their statutory leave entitlement. Note, you can carry some holiday over to the next year; like carrying eight days from 28 days accrued.
Zero-hours contract notice period
This is because most zero-hours workers hold the employment status of ‘worker’. However, the best course of action for employers is to provide casual contracts with a brief notice period in a written statement. This can range from a day to a week's notice.
Zero-hours contract and unfair dismissal
However, if the individual working under a zero-hours contract is considered as an ‘employee’, they'll have the right to protection against unfair dismissal.
If they've worked for you for two years or more, they can file an unfair dismissal claim with the employment tribunal. But they can only raise the claim if they have service for at least two years.
Be aware that, while zero-hours workers cannot claim for unfair dismissal, they can file a claim in the employment tribunal for unlawful discrimination. This is if they believe there is a discriminatory reason you haven't provided them any work.
How to draft zero-hours contracts for your workers
The contract for zero-hours workers must be properly drafted and include the following:
- Statement: A statement saying that you are under no obligation to provide the individual with a minimum number of hours of work.
- Process: The process through which an individual will be provided a job.
- Entitlements: The pay, benefit, and notice periods that apply to the worker.
- Status: The employment status which you require them to accept work. (This is likely to be an employee).
Remember, exclusivity clauses are no longer allowed under zero-hours contract law.
Terminating a zero-hours contract
There are a few factors to consider before terminating zero-hours contracts.
First, check if you hired the person as an ‘employee’ or a ‘worker’. This will describe their employment relationship and legal rights.
If you decide to terminate a zero-hours contract worker, you should:
- Present the role as a zero-hours job.
- Include their employment status and rights in the contract.
- Explain how shifts are handled and the rules for accepting or rejecting them.
- Outline the steps for terminating their contract.
If they’re genuinely a worker, you can bring the contract to an end at any point.
Get expert advice on zero-hours contracts with Peninsula
Zero-hours contracts can be appealing for both employers and employees. This is because these types of contracts foster flexibility and free schedules.
Be aware, if you deny their legal rights, you could face tribunal hearing, compensation penalties, and reputational damages.
Peninsula offers 24/7 HR advice which is available 365 days a year. We take care of everything when you work with our HR experts.
Want to find out more? Contact us on 0800 051 3687 and book a free consultation with one of our HR consultants.