The costs and disadvantages of zero hour contracts for businesses

Sunday, June 5th, 2016
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The zero hours contract has received a lot of media attention recently. Employment agreements that make a worker available at short notice to an employer, but don’t actually guarantee any work, are becoming an increasingly popular solution for employers who want to cut costs with a flexible workforce. As of March 2016, there are over 800,000 workers in the UK on zero hour contracts, 2.5% of the total workforce, an increase of nearly 100,000 over the previous 12 months.

The negative coverage of zero hour contracts has focused on the disadvantages for workers, who can’t plan their working hours in advance and may find themselves faced with periods of no work and no wages, despite being officially employed and so not entitled to benefits.

But disadvantages of the zero hours contract also exist for employers. If your available work is unpredictable and work levels fluctuate, zero hour contracts might seem like the perfect solution. But it’s worth considering the impact this structure will have on your workforce, and looking at the alternative employment solutions available.

Protecting your reputation

There’s no escaping the fact that zero hours contracts are getting a bad press. Retailer Sports Direct have faced legal action from zero hours staff excluded from bonus schemes, and other major chains, including JD Weatherspoons and McDonalds, have been questioned and heavily criticised for using the contracts. Companies who rely on an alternative or ethical image, such as Curzon Cinemas, have had to defend using the contracts amidst allegations that company ethics don’t extend to staff.

Public criticism is a serious concern for companies offering employment on zero hours contracts . It may be difficult to reconcile such contracts with your values and brand image. It may also put off potential employees who choose not to apply for a job where their working hours are uncertain, or who don’t want to work for a brand that has received negative coverage for bad employment practices.

False flexibility

Zero hour contracts are attractive to employers because they appear to offer complete flexibility. When work is available, workers are there to cover it. When there is no work, the company isn’t wasting money on unneeded cover. But in practice, this is often a false flexibility. Casual staff with a zero hours contract and truly unpredictable work, will often be forced to look for alternative work elsewhere.

Exclusivity clauses, where an employer can stipulate that staff don’t work for anyone else, have been banned by law in the UK since 2015, and since then casual workers taking on more than one contract has become common. In the UK in November 2015 there were 1.7m zero hours contracts in operation and 800,000 workers employed on such contracts, an indication that many workers are forced to undertake two or more zero hour contracts to provide the hours they want to work.

The result of this dual employment solution is that casual workers may often be unavailable when an employer needs them at short notice.

Team building and productivity

It’s common practice for employers to issue only a proportion of their staff with zero hour contracts, usually those employees who work in roles affected by variable demand. This creates a split in a company between staff who are permanently employed with guaranteed hours, and those who may find themselves not being paid at all for certain periods. This can damage team morale in a business, create bad feeling, and highlight the negatives of zero hours positions. The Sports Direct legal action was a direct result of a difference in treatment between staff on a zero hours contract and those employed with fixed hours.

Employees who resent a working arrangement that appears to favour only their employer and who feel unfairly treated are unlikely to be as productive as workerswho feel valued and secure in their role.

Staff turnover

There are some people for whom a zero hours contract may be an attractive option – students, young people and working parents are the groups often given as examples of casual workers who appreciate zero hours flexibility. But for many workers, zero hour contracts offer only uncertainty and stress, and often fewer working hours than they would like. The natural consequence of this dissatisfaction is that such workers are likely to be seeking alternative employment with a more stable employment agreement, meaning that you risk losing good, experienced employees because your employment package isn’t attractive enough. The money saved by using zero hour contracts should be balanced against the money used on recruiting and training new staff to replace losses. Workers may also find that they are better off moving from zero hour contracts to becoming freelance, so you may be paying more to employ experienced people on a freelance basis.

The Zero Hours Contract alternative: flexible staffing

Zero hour contracts are not the only flexible working option out there. Using an on-demand staffing platform like Catapult, who can provide temporary staff on as little as an hour’s notice while handling all contracts and employment checks for you, can provide true flexibility to a business whilst giving staff the ability to decide their own work load, without being tied into an unpredictable contract.

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