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Guide to zero hours contracts for employers

Tuesday March 31st, 2015

IOD_logoThe Institute of Directors has released a guidance on zero hours contracts and the employer responsibilities they entail.

The guidance states that 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 to him or her, but must carry out the work personally if they do.

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.

Status (worker/ employee)

Most zero hours contracts will give staff ‘worker’ status – they are entitled to rest breaks, annual holiday, sick pay and, importantly, to be paid the national minimum wage – but not ’employee’ status, which carries further rights such as the entitlement to claim for unfair dismissal, to maternity pay and leave, to ask for flexible working, to statutory minimum notice periods, and to 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 new auto-enrolment pension rules apply, it can be difficult to determine a zero hours contract worker’s entitlement under these regimes.

Rest breaks

Zero hours contract workers have the same right to a 20-minute break in every six hours worked, and 11 hours’ uninterrupted rest in every 24 hour period/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.

Annual leave

Zero hours contract workers have the same right to 28 days’ annual leave (including bank holidays), although this is pro rata the average number of days they work per week.

Sick pay

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 last eight weeks has been at least £111 per week (the lower earnings limit in 2014/15).

National Minimum Wage

The national minimum wage (£6.50 from October 2014) 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, which must be at least the minimum wage.

Zero hours workers are protected by discrimination laws too. 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 has indicated that it is unlikely to ban them as they can be useful to both employers and employees.

A consultation on the use of zero hours contracts that ended in March 2014 received over 36,000 responses. As a result, the government will be banning the use of exclusivity clauses in zero hour contracts in the Small business, Enterprise and Employment Bill. A private member’s Zero Hours Contracts Bill to limit the use of zero hours contracts has also been introduced to parliament.
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.

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