Zero hours contracts: A flexible way for employers to contribute to the labour market?


During an economically challenging period employers have challenged the traditional employment choices of a full-time, part-time or fixed-term employee, and focus has shifted to a cost effective, non-committal form of employment in the form of the zero hours contract.

Whilst zero hours contracts have become a controversial topic with evidence suggesting that some employers may have been abusing the flexible terms, there are also people who benefit from this arrangement such as students or other people requiring flexibility with their working arrangements.

One benefit of the zero hours contract is that the flexibility they provide has encouraged more employers to engage workers where they would not normally have done so under traditional contractual terms. In an economic or even post-economic crisis, it is likely that this has led to many employers providing some level of work where they would not have otherwise done so.

However, many feel a negative consequence of the zero hours contract has been the rise of exclusivity clauses within them, preventing workers from working for other employers. This has had an adverse effect on individuals who, without a guaranteed income, have suffered economic hardship as a result of the lack of security that they provide.

What may change?
The Small Business and Employment Bill has focused on the removal of the exclusivity clause and although this has received royal assent, it is not yet clear when the bill will come into force. The banning of the exclusivity clause means that employers will no longer be able to enforce this requirement on workers,
and employers are advised to seek legal advice and consider removing this from existing agreements. Employers may also want to consider other ways in which to employ a flexible workforce that will not potentially breach employment law.

Employers wanting flexibility within their workforce, without necessarily incurring the commitment or liability of employing full-time permanent employees, should seek the advice of employment experts who can assist them to make planning decisions in today’s ever-changing employment landscape.

Personal taxation
One of the main challenges for workers on zero hours contracts relates to how they are paid and the operation of the withholding of both income tax and National Insurance (“NI”). The apportionment
of the personal allowance and tax bands together with NI thresholds can make it difficult to predict the worker’s net pay and so manage cash flow. This is likely to be the case with a single contract providing irregular work and will be complicated further with multiple zero hours contracts.

If zero hours contracts are the way forward, then a more practical approach to correct accountability for tax is needed. One proposal would be to treat the workers as “self-employed” for tax purposes and allow them to receive their pay on a gross basis and account for their own tax and NI whilst the employer would still account for employer’s NI on the pay. Alternatively, if the proposal to scrap the annual personal tax return is enacted, then such workers wouldkeep track of their tax and NI through their own Digital Tax Account.
Any anomalies or over/under deductions would be corrected immediately thus ensuring that they know and can plan for their actual net pay.

For more information, please contact your usual Blick Rothenberg contact or Karen Foot, head of HR services on +44 (0)20 7544 8875, or at