The debate over zero hour contracts

The debate about the use and, some would say mis-use, of zero hour contracts has been a hot topic for businesses, politicians and workforce commentators for a good two years or so, with recent analysis from the Office of National Statistics attempting to bring more clarity and evidence to the discussions.

Depending on your viewpoint they can be good or bad, necessary or intrusive, important to future business working practices or in need of being outlawed. This confusion has led to a government consultation on them.
Back in 2012 the ONS initially estimated the number in existence at around 250,000. The increased media coverage led to more people identifying that their working arrangements were a zero hour contract, and with a growing economy creating a need for more such contracts the ONS survey of employees suggested that the number of contracts had more than doubled to 580,000 by late 2013.

At the end of April 2014 the ONS released further research, this time from employers, which put the figure at around 1,400,000. And this may not be all. As Laura Gardiner, senior researcher at the Resolution Foundation think tank, wrote:

“Today’s figures have led to reports that the number is closer to 1.4 million (or even 2.7 million if you include 1.3 million contracts that did not provide work over a two-week period). So, the number of zero-hours workers is no lower than 580,000 and could be as high as 1.4 million or even 2.7 million (and you could even add a further 100,000 or so on due to sampling uncertainty). That’s a long way from where we were, right?”

So what are zero hour contracts and what are the main arguments for and against them?

Definition
There is no legal definition of a ‘zero hours contract‘ so different organisations may well interpret them differently. Employers and employees also often differ on their interpretation of what constitutes these contracts. The government consultation document defines them as “an employment contract in which an employer does not guarantee the individual any work and the individual is not obliged to accept any work offered” Most bodies measuring them, including the ONS, use the definition of “contracts that do not guarantee a minimum number of hours“.

Why the sudden apparent increase?
There could be number of reasons. The one most accepted is that as the larger figure comes from the employers survey this would imply that a number of workers have more than one of these contracts at the same time. The counter to this is that many employees have seen themselves as working on a flexible or part time contract and have only recently, following media coverage, begun to identify their working arrangements as a ‘zero hours contract’.

Anecdotally it would appear that a number of businesses in the retail and hospitality sector were already using these types of contracts several years ago, however their popularity has certainly increased as a result of the recent recession and has helped businesses manage workflows flexibly.

Who is likely to be working on such a contract?
For this we can turn to the Resolution Foundation who have done analysis on the most recent figures. They said “analysis finds that ZHCs are concentrated among younger workers (more than half of ZHC workers are aged under 30), those with GCSEs or A levels (although one in five ZHC workers has a degree), and people working in the hospitality, arts and leisure, administration and health and social work sectors. Although the estimated number of ZHC workers has swelled in recent years, these characteristics have remained fairly constant”

Aside from age and education they also found “There is also evidence that ZHC workers occupy a less desirable and more precarious place in the labour market than other workers: they are much more likely to be underemployed or looking for a new job (although the majority aren’t), and much less likely to be a member of a union. For example, 29% of all those on zero-hours contracts are looking to work more hours, compared to just 11% of those with fixed-hours work”

Are workers on these contracts happy with them?
Anecdotal evidence seems to vary. For some people they provide the opportunity to work part time with an arrangement that suits their lifestyle, whilst others can be left underemployed and not working enough hours to earn what they need. Research from CIPD in November 2013 found that levels of job satisfaction and engagement were not lower for people on zero hours contract.

Their survey concluded that “Among those employers that do engage people on zero-hours contracts, flexibility lies at the heart of the rationale. Two-thirds of these employers say that the flexibility to respond to peaks and troughs in demand is the reason they use zero-hours arrangements, however, about half of employers say a reason they use zero-hours contracts is to provide flexibility for the individual. This suggests that in many instances, zero-hours contracts are designed to work for both employer and individual”

On the question of job security, the Resolution Foundation found that “the differences between ZHC and non-ZHC workers remain significant even when analysis takes account of age, qualification levels and job sectors – suggesting that greater job insecurity is connected to zee hours work in general and not just to the particular parts of the labour market that have a high incidence of zero-hours work”

Is there an ‘exclusivity’ problem?
The area where those for and against the use of zero hour contracts will mostly agree is over the question of exclusivity. This arises when a company has a clause requiring a worker on a zero hour contract to work only for them even if they do not get the required hours, or even no hours at all in some weeks, and most commentators agree that these are not a good idea.

Some research suggests that only around 10% of employers actually use these, but that doesn’t necessarily indicate how many of the total contracts may have the clause. Common sense and best practice would suggest that if a company is not providing a worker with enough hours then that worker should be allowed to work for someone else to make up those hours. However the CIPD research indicated that only around 60% of ZHC workers say that they can work for another company if their primary employer does not have any hours.

Linked to this is the question of whether or not an employee can turn down the offer of hours without getting penalised, something that’s very important for students and parents who may be working under one of these contracts as a way to find part time employment. Looking again at the CIPD research, 20% of people say that they are sometimes, or always, penalised for turning down hours, which appears high given that hours can be offered at very short notice.

What about employment rights?
Probably one of the most contentious issues is over whether or not a worker on a zero hour contract is an employee of the business and will be offered the same rights as someone on formal employment contract.

There were some areas of concern raised by the CIPD research. Whilst two thirds of employers said that they classified their zero hours contract workers as employees only 31% said that their zero hours contract workers qualified for redundancy pay, and only 40% that they were eligible for statutory maternity, paternity and adoption rights. Similarly just 50% believed that their zero hour contract workers had the right to not be unfairly dismissed.

These findings led the CIPD to conclude “This research underlines the need for employers to provide written terms and conditions for all zero- hours staff, regardless of whether they are ‘workers’ or ‘employees’, which spell out their employment status and their employment rights and benefits. Employers need to regularly review their zero-hours contracts to ensure that if the reality of the working arrangements changes over time, either managers are given improved training to ensure they manage their people on zero-hours contracts in line with the contract or the contract is amended accordingly”

Conclusion
The debates around zero hour contracts tend to polarise around three views. Employers usually see them as a way to manage a flexible workforce whilst keeping as many people as possible in work. Employees who want part time work and can accommodate finding out when they do and don’t have work at short notice see them as a way to keep in the workforce without having to give a more permanent commitment.

It is the third group, the employees who want to work but can find few alternative working arrangements, over whom most of the debate occurs. Despite growing research, we still don’t really know how many fall into this category. Neither do we know if the figures for satisfaction are swelled by people in this category who are happy to have any work but would dearly like to find longer hours or a more permanent arrangement.

The areas that cause most concern are over employment rights and whether or not these contracts are becoming the norm, potentially leading to a much more precarious workforce.

The CIPD research recommended that “Employers should only use zero-hours contracts where the flexibility inherent in these types of arrangement suits both the organisation and the individual. Employers should consider whether zero-hours working is appropriate for their business and if there are alternative means of providing flexibility for the organisation, for example, through the use of annualised hours or other flexible working options. Zero-hours working lends itself to situations where the workload is irregular, there is not a constant need for staff or staff needs are driven by external factors outside the employer’s control”

Let us know about your experience of zero hours contracts, whether as an employer or employee.

Author Bio
Mervyn Dinnen is an award winning blogger and a content & social engagement strategist. He specialises in the Recruitment and HR sectors and is a regular speaker and panellist at industry conferences.

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