With a new government eager to portray itself as, in the words of Chancellor Reeves, “the most pro-growth, pro-business Treasury in our history”, we will soon see a significant change in employment law: the ban on zero-hour contracts.
While aiming to improve employment standards and job security, businesses, particularly recruitment agencies, are expressing their concerns about the transition and the impact of the change on seasonal workers and those who prefer the flexibility of contract work.
On the other hand, Paul Nowak, the chairman of the Trade Union Congress (TUC), firmly believes in “driving up employment standards and making work pay for everyone”. Their latest polling suggests that 84% of zero-hour workers prefer regular hours.
What are the problems with zero-hour contracts?
Zero-hours contracts are standard in industries with irregular or seasonal work, offering flexibility by allowing employers to hire staff without guaranteeing any work hours. Unpredictable income and erratic work schedules can cause financial instability and make future planning difficult for workers. Moreover, research shows that zero-hours contracts disproportionately affect vulnerable groups, including young people, women, and ethnic minorities.
What Could the Ban Mean for Agencies?
We are already seeing some recruitment agencies shifting their contractors to minimum-hours arrangements. Those who remain reliant on zero-hour contracts may face the following challenges:
Loss of workforce: Agencies may lose workers who prefer the flexibility of zero-hours contracts. Alternatively, they may offer minimum-hour contracts, which adds operational complexities to their business. It is believed that as much as 20% of businesses use zero-hour contracts to retain workers and mitigate the risk of redundancies.
Reduced Flexibility: With the ban on zero-hour contracts, businesses will face challenges in meeting fluctuating demand, like covering staff and short-term needs.
Legal Risks: Some businesses will inevitably misclassify workers as self-employed to maintain flexibility. By doing so, they may risk legal challenges if contracts don’t reflect the actual working conditions.
Increased Cost: Zero-hours contracts are often more cost-effective than alternatives like part-time contracts with guaranteed hours, overtime, or annualised hours. Agencies are understandably concerned about a ban’s impact on their margins.
What can agencies do to prepare?
To minimise the impact of the ban on their businesses, agencies should consider the following steps:
1. Conduct a workforce audit to determine your business’s reliance on zero-hour contracts. Doing this early will help you plan and manage change.
2. Review Employment Practices to prevent legal issues by evaluating the number of zero-hour workers who are working regular working hours. Under the new regulations, they might already be entitled to contracts that reflect their working hours.
3. Explore alternatives by considering part-time contracts, annualised hours, or transitioning to umbrella employment, which offers minimum-hour contracts. These options help retain flexibility while offering greater job security for employees.
Umbrella Employment: A Viable Alternative
Working with a compliant umbrella company like SmartWork is an effective alternative to zero-hours contracts for agencies. While maintaining operational flexibility for the agency, the worker will benefit from greater job security.
The Umbrella employment model uses an overarching minimum contract and provides statutory employment rights, holiday pay, and continuity of employment.
Looking at the positives
While adapting to the ban on zero-hours contracts is challenging for businesses, it also offers a chance to reevaluate and improve employment practices, leading to improved talent engagement and retention.
Working with SmartWork
If you have any questions, or would like to discuss working with SmartWork, please contact neil.kane@smartwork.com or call 0800 434 6446. We are FCSA Accredited Members and an APSCo Trusted Partner, helping contractors and partnering with recruitment businesses for over two decades.
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