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Zero-hours contracts - Factsheets - CIPD

Revised January 2016

What are zero-hours contracts?

Zero hours contract is not a legal term. In the absence of a legal definition, the CIPD defines
a zero-hours contract as an agreement between two parties that one may be asked to perform
work for another but there is no minimum set contracted hours. The contract will state what
pay the individual will get if they do work and will deal with circumstances in which work
may be offered and possibly turned down.
The exact nature of zero hours contracts may differ from organisation to organisation. For
example:

Individuals on zero-hours contracts may be engaged as employees or workers.

In some zero-hours contracts the individual will be obliged to accept work if offered,
but in others they will not.

The pay arrangements and benefits provided may differ from those provided to people
doing the same job with a contract offering guaranteed hours.

Because zero-hours contract does not have a specific meaning in law, its important for
employers to ensure that written contracts contain provisions setting out the status, rights and
obligations of their zero-hours staff.

Why use zero-hour contracts?

Organisations considering using zero-hours contracts should think carefully about the
business rationale for doing this, including whether there are other types of flexible working
or employment practices that would deliver the same benefits.
These types of working arrangements are most suited to situations where work fluctuates
unexpectedly and where consequently the employer cannot always guarantee work.
According to our 2013 research Zero-hours contracts: myth and reality, the most common
reason employers use zero-hours contracts is to provide them with the flexibility to manage
fluctuations in demand, with two-thirds of organisations citing this. However, employers also
regard zero-hours contracts as a means of providing flexibility for individuals, with the same
research reporting that just over half of respondents say they use them to provide flexibility
for individuals. Our latest report Zero-hours and short-hours contracts in the UK: employer
and employee perspectives has more information on our findings.

Other key reasons for using zero-hours contracts include reducing costs and avoiding the
specific costs associated with using agency workers.

Employment status
Employment status is a key issue that employers need to consider when using zero-hours
contracts. There are three main types of employment status: employee, worker and selfemployed. CIPD members can find out more detail on these in our law FAQs on employee
status.
The correct status category depends to an extent on the content of the actual or implied
employment contract, but ultimately a legal decision would be based on how working
arrangements operate in practice.
The legal tests for each type of employment status are:

Employee
An individual will be an employee if:

there is an obligation to provide personal service, and

there is mutuality of obligation, and

the employer controls the way in which work is done, and

other factors are consistent with employment (for example level of integration into
business, label applied by the parties, nature and length of engagement, benefits
received by the individual).

Self-employed
An individual will be self-employed if:

there is no obligation to provide personal service, or

there is no mutuality of obligation, or

they are carrying out a business and the other party is the customer.

Whether an individual is carrying out a business and whether the other party is a customer of
that business will depend on various factors being established, such as:

The employer does not exert a high level of control over the individual.

The individual is not integrated into the employers business.

The individual actively markets his or her services to the world in general.

The engagement is relatively short in duration.

The individual is providing specialist services.

The individual invoices for fees.

The individual supplies the equipment needed to perform the service.

The individual carries a level of risk (for example, if the work is not done, the
individual does not get paid).

Worker
An individual will be a worker if:

there is an obligation to provide personal service, and

there is mutuality of obligation, and

they are not carrying out a business and the other party is not a customer, and

they don't otherwise meet the test for being an employee.

Worker is the hardest category to identify because workers tend to exhibit characteristics of
both employee and self-employed status. One way to understand what a worker is, is to think
of workers as a sweep up category which ensures that individuals who would otherwise be
self-employed, but who show some characteristics of employees (for example control), have
meaningful legal rights. It's important to remember that all employees are workers.
The employment relationship can change so employers should carry out a regular review to
ensure that individuals are being managed in line with the status specified in their contract.
Ideally, line managers should also receive training so they understand fully the different types
of employment status and their advantages and disadvantages.

Difficult issues
For information on how to deal with some of the more challenging aspects of zero-hours
contracts, for example exclusivity, holiday pay and statutory sick pay, read our guide Zerohours contracts: understanding the law.

Recent legislation on zero-hours contracts

In May 2015, following a consultation exercise and as part of the Small Business, Enterprise
and Employment Act 2015, the Government banned exclusivity clauses for zero-hours

contracts. Its now against the law for an employer to prevent an individual who is employed
under a zero-hours contract from working elsewhere.
Further regulations came into force in January 2016 giving zero hours workers the right not
to be unfairly dismissed or subjected to a detriment for failing to comply with an exclusivity
clause, and to claim compensation.

What does good practice look like?

Our research reports Zero-hours contracts: myth and reality and Zero-hours and short-hours
contracts in the UK: employer and employee perspectives identified areas where some
employers need to improve their working practices. Recommendations include:

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 employers control.

All zero-hours contract workers should receive a written copy of their terms and
conditions. We have called for all workers to be entitled to a written terms and
conditions statement no later than two months into their contract. Currently, under the
Employment Rights Act 1996, only employees are entitled to this.

Employers should set out in the contract the employment status of those engaged on
zero-hours contracts and conduct regular reviews (at least once a year) of how these
contracts are operating in practice. Reviews should include conversations with line
managers and staff on zero-hours contracts. If the reality of the employment
relationship no longer matches the contract of employment, one or the other should be
adjusted to bring them into line.

Employers need to provide training and guidance for line managers to ensure they are
managing zero-hours workers in line with their employment status. Training must
ensure that line managers are aware that zero-hours workers have a legal right to work
for other employers when there is no work available from their primary employer.

Employers should provide zero-hours workers with reasonable compensation if prearranged work is cancelled with little or no notice. We believe a reasonable minimum
would be to reimburse any travel expenses incurred and provide at least an hours pay
as compensation. Some employers appear to go further than this, for example by
paying employees in full for shifts cancelled at short notice. This seems a reasonable
position if organisations also prevent or penalise employees from cancelling prearranged work at short notice.

Employers should ensure there are comparable rates of pay for people doing the same
job regardless of differences in their employment status. This could be written into
employment policies and terms and conditions with practice reviewed periodically.

CIPD viewpoint
Used responsibly, zero-hours contracts can provide flexibility that works for both employers
and individuals. Our 2013 and 2015 research reports found that zero-hours contract
employees are, on average, as satisfied with their jobs as employees as a whole. But they
arent suitable for everybody. The potential variability of work and earnings can be a source
of financial instability and stress. Our research also shows that zero-hours contract employees
are more likely to want to work additional hours, although under-employment is not confined
to this group.
However our research shows that poor practice does exist. For example, only 45% of
employers using zero-hours contracts have a written policy or procedure for what happens
when work is cancelled at short notice.
To help improve practice, we believe that an agreed code of practice on zero-hours contract
working should be developed. There should be a national campaign to raise understanding
and awareness among both employers and zero-hours workers on the issue of employment
status and rights, and all workers should be legally entitled to a written copy of their terms
and conditions not later than two months in employment.

Acas zero hours contracts

Further reading
Books and reports
DEPARTMENT FOR BUSINESS INNOVATION AND SKILLS (2015) Zero hours
contracts: guidance for employers. London: BIS. Available at:
https://www.gov.uk/government/publications/zero-hours-contracts-guidance-for-employers
OFFICE FOR NATIONAL STATISTICS (2015) Employment contracts that do not
guarantee a minimum number of hours: 2015 update. London: ONS. Available at
http://www.ons.gov.uk/ons/dcp171776_415332.pdf
Visit the CIPD Store to see all our priced publications currently in print.

Journal articles
CHARLTON, J. (2013) Zero tolerance. Employers' Law. November. pp12-13.
COTTON, C. (2013) Should zero-hour contracts include a minimum benefits provision?
Employee Benefits. 30 August 2013, p5.

No guarantees: the problem with zero hours. (2014) IDS Employment Law Brief. No 1007,
October. pp14-19.
STEVENS, E. (2013) Freedom of choice. Employers' Law. October. pp18-19.
STEVENS, E. (2015) Zero hours contracts: clarifying employment status. Employers Law.
July/August. pp18-19.
Zero-hours contracts on the increase across all sectors. (2013) Workplace Report. No 110,
February. pp15-17.
CIPD members can use our online journals to find articles from over 300 journal titles
relevant to HR.
Members and People Management subscribers can see articles on the People Management
website.
This factsheet was last updated by CIPD staff.