Business

Why Zero Hours Contracts Can Be Both Good and Bad for Business

4 Mins read
  • Zero hour contracts can be a great idea for some companies, but they aren't without their issues.

Running a business certainly isn’t easy. You need to know how to juggle a lot of responsibilities. One of the biggest challenges that you need to deal with is managing employees.

There are a lot of employee management tips that you need to keep in mind. One thing to think about is the use of zero hours contracts. Are they a good or bad thing for business owners?

Understanding the Pros and Cons of Zero Hours Contracts for Your Small Business

The use of zero hours contracts has seen a considerable rise in the UK employment sector, as reported by the Office for National Statistics. Despite the increased use of this type of employment arrangement, zero hours contracts are surrounded by misconceptions and controversies.

For instance, there is a misconception that workers employed under zero hours contract are not entitled to sick pay.

In this article, we consider the advantages of zero hours contract that has made them such a popular form of employment. We also consider the disadvantages of zero hours contracts that have led some people to demand a complete ban on their use.

What are zero hours contracts?

The term ‘zero hours contract’ is a non-legal term used to describe a variety of employment contracts. The aspect common across such employment arrangements is that the employer is not obliged to provide any minimum working hours.

Such an employment arrangement offers flexibility to the employer and the worker. The use of zero hours contracts is more popular in organisations that require a flexible workforce to meet the different staffing needs around the year.

What are the benefits of zero hours contracts for your business?

The largest advantage that has made zero hours contracts a popular choice amongst employers is the benefit of a flexible workforce and can be a solution to a lot of staffing issues. Particularly in industries that require different staffing need during off peak and peak times.

Flexibility

For any organisation to be successful, and particularly for new business faced with limited funds, it needs to have the ability to respond efficiently to business fluctuations. So engaging people on zero hours contracts helps an employer:

  • to respond better to unforeseen events such as an increase in demand
  • to cover an event where their level of permanent staff is not sufficient or busy elsewhere
  • to cope with unforeseen absences of their permanent staff
  • to deal with busy periods such as Christmas or New Year

Cost

Under a zero hours contract, employers are under no obligation to offer work to the individual. So workers only get paid for the hours they work.

As compared to agency workers, hiring people on zero hours contracts help avoid costs such as agency fees and commission for the agency worker.

What are the disadvantages of zero hours contracts for employers?

While zero hours contract offers multiple advantages, they can present some challenges that include the following:

Flexibility can backfire

While zero hours contracts offer flexibility to the employer, overuse can backfire. Just as the employer is under no obligation to provide work, the worker may be under no obligation to accept any offered work.

If it becomes difficult to find someone to undertake the work needed at short notice, the cost of employment can rise considerably and/or the right staff may not be assigned to the job.

Quality of work

When employing workers on zero hours contracts, an employer may have different people doing the same job. This sometimes leads to a difference in service delivery and quality.

To avoid such problems, employers need to ensure that the standards are being met and that the quality of work is consistently good.

Putting in place the processes to achieve standards, and then training staff can be time consuming and expensive.

Entitlement to holiday and sick pay and other matters

Although zero hours workers are entitled to 5.6 weeks annual leave under the law at a rate of a week’s pay for each week of leave, how this applies can be difficult to determine in practice.

It can also be tricky for employers to determine whether the employment relationship continues between engagements and to determine the employment status.

What are the advantages of zero hours contract for workers?

Despite all the criticisms against zero hours contracts, they have some advantages for the workers too.

Flexibility

If the individual is a student, semi-retired, or has care responsibilities, working on a zero hours contract can allow them to earn money and have time for their other commitments. Further, if they cannot work when they are called to another commitment, they are under no obligation to accept the work.

Getting your foot through the door

If you take on a job under a zero hours contract in an organisation where you really would like to work and they do not have full-time contracts available, making yourself known to them on a flexible contract can lead to something more permanent, should the opportunity arise.

This can prove particularly useful for students who need to gain employment experience and skills.

Extra income

Zero hours contracts offer no set hours. The upside to this is the ability to pack in extra hours as they become available.

What are some disadvantages of zero hours contract for workers?

Criticisms against zero hours contract have been well documented by the press. Some of these include:

No jobs security

A primary reason for criticism of zero hours contract is that they offer no real job security or fixed income. A zero hours worker does not know when their next shift may be and, consequently, when they will get paid.

If a worker has been given short notice of work, they might not take it on due to their other commitments. Conversely, they could be offered work in advance, but their job could be cancelled by the employer at the last minute. This puts the worker in a vulnerable position.

Resultantly, zero hours workers find it tough to obtain financing, for example, to buy a house.

Employments rights

Employment rights flow from your employment status. In simple words, your rights depend on whether you are an employee, a worker, or self-employed. An employee will have a range of employment rights granted to him or her under the law. A worker has lesser rights and protections.

For instance, whereas an employee is given statutory maternity leave and pay, a worker is given only statutory maternity pay. Therefore, a worker may not have time off work to make antenatal meetings and can be asked to arrange such appointment outside of working hours.

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About author
Jasmine Williams covers the good and the bad of today's business and marketing. When she’s not being all serious and busy, she’s usually hunched over a book or dancing in the kitchen, trying hard to maintain rhythm, and delivering some fine cooking (her family says so). Tweet her @JazzyWilliams88
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