How to manage employees on zero-hours contracts

Zero-hours contracts have a villainous reputation in UK employment — and in some cases, this is entirely deserved!

But the fact remains that these contracts are extremely useful for businesses, and many workers actually like the flexibility they provide.

If you're thinking about using these controversial contracts, there's plenty you can do to ensure that you're doing so effectively.

What are zero-hours contracts?
There's no legal definition for zero-hours contracts, but it's a term generally used to describe a contract between a worker and employer that meets the following criteria:

• The worker isn't guaranteed any work
• The employer offers work when it is available
• The worker can choose whether or not to accept each offer of work

Detractors of zero-hours contracts say that they provide no financial stability to employees, and often require workers to change their plans at short notice when offered work. Workers may also arrive at work only to be turned away if they aren't needed after all.

Nonetheless, a good proportion of workers on these contracts are satisfied with them. In fact, one study suggested that less than a third of workers on zero-hours contracts actually want more hours.

McDonald's recently offered all of their workers on zero-hours contracts the chance to move to a fixed hours contract - but 80% chose to stick with their current contract.

It's clear that the flexibility provided by zero-hours contracts has a place in today's job market, but for them to work for your company, you need to use them correctly.

When to Use Zero-Hours Contracts

Zero-hours contracts are best used when a business requires flexibility from a subset of their workforce to help them navigate fluctuations in workload while keeping costs low.

Typical scenarios where zero-hours contracts are most useful include:

• At restaurants, cafes, or bars where events require significantly more staff at short notice, on an irregular basis
• At delivery companies, where demand fluctuates hugely on a day-to-day basis
• For companies that require relief workers to cover absent staff on an occasional, unpredictable basis
• For companies that require workers to be ‘on-call’, providing extra cover at short notice

The common theme here is obviously the unpredictable nature of the work required.

When Not to Use Zero-Hours Contracts

Zero-hours contracts get a bad rap in the UK for plenty of reasons, but perhaps the biggest one is that many businesses misuse them.

Generally speaking, don’t use zero-hours contracts if…

• The extra workload is regular and predictable
• You expect the employee to work the same hours and days each week
• The worker plays a core part in the running of the business
• You’re using them to avoid providing certain rights to your staff
• You’ll usually only need the worker for a couple of hours each week

In these situations, you’re better off using some alternative arrangements instead.

You might find that these types of working arrangements are more suitable for the type of flexibility you require from a particular worker.

Self-Employment

In some situations, working with a self-employed worker might be a better fit. In this situation, you’re sent invoices for the freelancer’s services and you’re not responsible for their tax or NI payments.

You offer them work as and when you need to, but it’s entirely up to the freelancer whether or not to accept it.

The freelancer must be able to dictate their own hours and should be able to outsource the work to others if they want to.

Although the prospect of reducing your tax bill might sound tempting, be careful that you don’t fall foul of HMRC’s crackdown on false self-employment. If you hire a freelancer, you can’t treat them like an employee.

Agency workers

Turning to agencies to fill a temporary void in your workforce is another feasible approach. Agency workers usually have plenty of experience in their specific roles and can be take on work at short notice. You pay the agency, and the agency pays their wages.

Don’t expect agency workers to fulfil a permanent role at your business - they’re best used to help with seasonal workloads when you can’t spare much time to bring staff up to speed.

Overtime

Instead of having another worker on your books, you could instead offer overtime to permanent employees. This saves you the hassle of having to hire more workers, while still giving you the flexibility you need.

Expanding the amount of overtime is not without risks. First of all, if you offer more generous pay for overtime, it’ll start to cost you if you become reliant on it. But most worryingly, your staff could suffer from burnout if they work long hours on a regular basis. Therefore, offering overtime is most useful when you only occasionally need employees to work for longer.

Part-time employees

If the extra workload is reasonably regular and doesn’t involve too many seasonal fluctuations, a part-time employee could be a good fit. Having a fixed amount of hours each week gives employees financial stability, and means they can plan other aspects of their lives further in advance.

Of course, some workers may instead prefer the flexibility of a zero-hours contract. Choose the option that works best for both parties.

Annualised hours

Using annualised hours contracts give employees some stability while maintaining plenty of flexibility for your business.

Under this arrangement, workers must work a total number of hours each year (say, 1500 hours), split into rostered hours (which an employee is scheduled to work) and reserve hours (which an employee may be required to work, depending on demand).

Annualised hours work best for companies that can anticipate demand for their services for the whole year. The system does allow for deviations from your forecast, but under these contracts, you can’t require employees to work anything other than rostered and reserve hours - employees are within their right to turn extra work down.

In most cases, individuals on zero-hours contracts are classed as workers, not employees.

Staff on zero-hours contracts are usually deemed workers if:

• They must work to the terms of a contract (written or verbal)
• They usually have to complete the work personally but have a limited right to send someone else (usually a subcontractor)
• They can turn down work offered (this is called mutuality of obligation)

This is a grey area in UK employment law, so double-check with an expert if you’re unsure.

Let’s assume that your contracts are with workers, not employees.

Here are some of the rights zero-hours contract workers are entitled to:

• The National Minimum Wage
• Paid holiday
• Maximum of 48 hrs of work a week (and the right to opt out)
• Protection against discrimination
• Whistleblowing protection
• Statutory sick pay

They aren’t entitled to some employment rights like statutory maternity or paternity pay and statutory redundancy pay.

Another reason for the vilification of zero-hours contracts is that some employers may take advantage of workers on these contracts to the extent that the arrangement becomes a nightmare for the worker.

If you exploit workers in this way, you risk negative coverage in the press, on social media, and amongst the local community. Although you may be technically acting within the law, avoiding a negative reputation is certainly in your best interest!

By following these guidelines when managing workers on zero-hours contracts, you’ll make the most of the arrangement without upsetting your staff - and your reputation.

• Finalise rotas as far in advance as possible. Don’t leave your workers wondering if they’ll be called into work each morning. Whenever possible, finalise rotas at least a week in advance. Sure, relief workers might expect to be called in on the day, but avoid this for all over types of workers if you can.
• Have a transparent system for offering hours. If you have many workers on zero-hours contracts, it’s important to be open with them about how you allocate hours. We recommend using rota software with an ‘open shifts’ function and the ability to share availability patterns so that workers understand how the rota is formed.
• Have a policy for cancelled work. You should avoid cancelling work with little notice - if you don’t, zero-hours workers might even make it to on-site before being told there’s no work for them. This practice, while not illegal, should be unacceptable. Compensate workers if this happens, such as paying for their travel expenses or, say, two hours of wages.
• Make sure both parties are aware of their rights and responsibilities. Provide a written contract and be open about which employment rights workers receive, and which they miss out on. Be clear about your expectations in terms of accepting and turning down work.
• Be honest about the nature of the contract during the recruitment process. Given how controversial zero-hours contracts are, it’s best to be open about it if a vacancy will be filled by a worker on such a contract. This’ll mean that you’ll only receive applications from hopefuls who are content with this arrangement. You should also let applicants know if a fixed-hours contract will be offered to them after a certain number of months.
• Understand individual circumstances. Remember that many workers like zero-hours contracts because of the flexibility they provide, but their ability to work shifts at short notice will change depending on their individual circumstances. Speak to individual workers about their preferences and requirements so that you can keep them happy without ruining your rota.
• Review zero-hours contracts on a regular basis. Make it company policy to systematically review all zero-hours contracts after two, six, and/or twelve months to see if a different kind of contract would be more suitable.
• Avoid isolating workers on zero-hours contracts. They might well feel like second-class citizens compared with full-time employees, leading to a definite split in the office. Take steps to resolve this issue by including your casual workers in business decisions, events and training opportunities.
• Be aware of implications on motivation, engagement, and customer service. With unpredictable hours, workers on zero-hours contracts won’t build the same familiarity with regular customers that regular employees might. Acknowledge that this can have an impact on customer loyalty and satisfaction, and do your best to offset this. Employee motivation and engagement will also be affected.

Q: Can workers on zero hours contracts take other jobs?
Yes. Exclusivity clauses in zero-hours contracts are illegal. Neither do workers need to ask for permission from you to take on work elsewhere.

Q: Do workers on zero hours contracts receive holiday pay?
Yes. Holiday entitlement is generally calculated as 12.07% of hours worked.

For example, if a worker works 15 hours during the week, they accrue just under 1.2 hours of holiday.

Q: How is holiday accrual affected if there’s a break in employment?
Some zero-hours contracts allow for a break in employment if there’s no work offered over a given amount of time, such as a week. Employers must pay any accrued and untaken holiday pay in this situation.

Q: Do workers on a zero-hours contract need to give notice?
If the individual is classed as a worker, they do not need to work through a notice period. If the individual is classed as an employee, they should be working the notice period detailed in their contract.

Q: What’s the best way of allocating hours between zero-hours workers?
To avoid accusations of unfairness, it's best to use some form of software for allocating shifts, instead of ringing round in whatever order the manager feels like.

Ideally, use a system that notifies all relevant workers of available shifts simultaneously - a first-come, first-served approach. If you find that certain individuals are claiming too many shifts, you may have to look for an alternative approach.

Q: Will zero-hours contracts give our business a bad reputation? How can we prevent this?
Possibly - rightly or wrongly, many people think that zero-hours contracts are only used by businesses in order to exploit workers.

However, if you can justify your use of these contracts and also, crucially, show that employees are perfectly happy working on them, you should be able to avoid the worst of any negative coverage.

You won’t be able to convince everyone that zero-hours contracts work for you and your workers, but by managing staff on these contracts carefully, you’ll deflect the worst of it.

Final thoughts

Zero-hours contracts shouldn't be used in every situation that requires a flexible workforce, but there's no doubt that in certain scenarios they can be a useful tool for businesses and employees alike. Be careful around the legal grey areas around zero-hours contracts, particularly when it comes to employee vs. worker status.

You'll also need to improve rota management at your business to keep on top of hours assigned to your casual workers, while also communicating shift changes quickly and easily. If you're on the lookout for such a solution, RotaCloud might be just the ticket...