What is a Zero Hour Contract?

Andrew Buck October 14, 2021

Zero hour contracts, also known as casual contracts, have gotten an increase in attention recently. But is the negativity surrounding zero hours contracts justified?

The idea of a zero hour contract is to provide flexibility for both employer and employee. Flexibility that is quite highly valued today by both sides.

Unfortunately, some employers may use zero hours contracts in bad faith, which is what has caused additional legislation to be introduced in some areas of the world to control this type of employment status.

In this article, we’ll explain the merits of a zero hour contract, why these contracts are used, and some of the advantages and disadvantages of these contracts from the employers perspective. We’ll also discuss some of the legislation surrounding the topic, and the responsibilities of both parties.

What is a Zero Hour Contract?

A zero hour contract is an employment agreement where the employee is under contract with an employer, but with no guaranteed number of hours.

This usually means the staff member is on call, or may be offered working hours each week, while not being on the company’s regularly scheduled rosters.

This type of employment contact is also known as a casual contract. 

For zero hours workers, this means there is no certainty they will get work, and thus no guarantee of pay each week.

The payoff – for both worker and employer – is the ability to be flexible. It’s important, however, that a zero hours contract is a mutually beneficial solution for all the parties involved.

When is a Zero Hour Contract Typically Used?

First, we should note that zero hour contracts are more common outside the USA. In the United States, most work agreements are considered “at-will”, meaning both the employer and the employee can terminate the contract at any time. 

So, while there could be many work agreements similar to zero hour contracts in the USA, people typically don’t call it by that name. 

In the UK, however, zero hour contracts are more common, and they are typically used for the following positions/scenarios.

Service businesses – Somewhere like a supermarket, fast food store, or retail may use these contracts to fill out changing rosters and cover other staff who are sick or on leave.

Holiday/seasonal work – Retail stores and e-commerce companies need extra hands during the holiday season rush. Temporary workers might fill that temporary need. 

Other seasonal work may include snow removal in the winter, summer camp jobs, or at an accountant’s office during tax season.

Weddings, concerts, other events – An event planning business could use zero hour contracts for help during weddings, concerts, conferences, trade shows, etc.

Temporary or gig workers – Instead of scrolling through Upwork every time there is a need for a gig, a business might maintain employees with casual contracts.

Specific expertise – Zero hour contracts could work when a business needs a specific skill, but not on an ongoing basis. For example, a business might need a web developer to build a new application. But once the app is built, maybe there is only an occasional need for maintenance and updates. 

Are Zero Hour Contracts Legal?

In the United States, there are no laws regulating zero hour contracts because, as we mentioned before, this concept is rather uncommon.

More often, employers maintain relationships with contractors and there are no obligations on either side. The employer doesn’t owe the contractor any work, and the contractor is not expected to remain available for the employer beyond their specific tasks.

But elsewhere, casual contracts are more regulated.

United Kingdom

The UK has updated their zero hour contract law to the following: 

Unlike the USA, zero hour workers in the UK are entitled to statutory annual leave, as well as the national minimum wage.

New Zealand

New Zealand has banned the use of zero hour contracts to stop unfair treatment of employees in sectors such as hospitality, service stations, and caregiving roles.

In many cases, workers were required to be available for employers, but without any guarantee of work (and consequently, payment).

Even without compensation, employees were expected to be available when needed under these contracts.

Despite the ban on this type of employment contract, New Zealand employers have some flexibility through the “availability clause” that may require employees to be available outside of regular hours under certain circumstances. 

Worker’s Rights and Zero Hour Contracts

All your employees are entitled to a few basic rights, and it includes those on zero hour contracts. 

Advantages and Disadvantages of Zero Hour Contracts

Zero hour contracts can provide you with greater flexibility and cost savings as an employer. But there could be some downsides as well. 

Let’s look at both the advantages and disadvantages of casual contracts.

Advantages

A low-risk entry point – Hiring the wrong people can be a nightmare. You invest significant resources in getting them up to speed, and if it doesn’t work out, then most of the risk falls on you, the employer. 

Starting with zero hour contracts can be a low-risk way to get to know a potential future full-time employee. You both get to make sure that working with each other is a good fit. 

If it’s not what you expected, then you don’t owe them any more work, and you can terminate the contract in a fair manner.

But if you do decide to take things further, then you already know that the likelihood of a positive outcome is high.

Cover during unexpected absencesUnexpected absences are a part of the game. Your team members can get sick, there could be family issues, or they might go on extended parental leave. 

When a regular team member is unavailable for lengthy periods, you could rely upon your zero hour contract employees to fill in and make sure the work isn’t disrupted.

Greater flexibility – If you have several employees on zero work hour contracts, it can provide you with greater flexibility, assuming you manage the process efficiently. 

If you work on projects that require a wide array of skills, then it could be complicated to hire full-time employees for all of them. 

Instead, you could maintain zero hour contracts with several employees, and assign them to projects that need their specific area of expertise.

Disadvantages

Lack of reliability – You won’t be able to rely on zero hour workers like your full-time employees, because they’re not fully committed to you at this point. 

It might not be the best idea to hire zero hour workers for key positions and functions within your business.

Low retention rate – If you find an employee that’s doing a great job, then you may want to think of ways to bring them in on a more permanent basis. 

As long as they’re on a casual contract with you, it would be wise to assume they’re looking for more lucrative opportunities that provide more financial stability.

Are Zero Hour Contracts Fair?

As long as your country or state allows zero hour contracts, and the contract is beneficial for both worker and employer, there’s no reason why you can’t make use of zero hours contracts in your company.

The key is to maintain fairness, however. You can’t require a worker to drop everything and come into work, unless they are being compensated for being on call. You also can’t require exclusivity (stopping employees from working for other companies), if you do not provide them with regular shifts.

If you’re considering a zero hour contract arrangement, here are a few things to consider to make sure it’s fair to your employees. 

Similar Benefits as Permanent Employees

A fair zero hour contract means there should be no discrimination when it comes to benefits.

Of course, you’re not going to have to provide the same exact benefits as you would for your permanent team members, but it should be done in a way that is fair and reasonable.

For example, if your regular employees accrue paid time off by working more hours, then the employees on zero hour contracts should have the same opportunity to earn vacation hours. The same goes for other benefits, such as pensions or healthcare.

You Must Allow Zero Hour Workers to Accept Other Work

Any employee that’s not working for you on a casual basis should have the right to hold other jobs or accept other gigs.

An employee on zero hour contract obviously can’t rely on that job for steady income. So, they must be allowed to accept other jobs or gigs if they have the opportunity.

This is the reason why the UK law states that zero hour workers can’t be prohibited from looking for, or accepting work from other businesses.

Free to Decline Work

A fair zero hour contract will also allow a worker to decline work when necessary.

They should not be obliged to say yes when called – the worker should be free to decline your work offer – and do not need to give a reason.

Zero Hour Contract FAQs

Let’s end by answering some of the most frequently asked questions about zero hour contracts.

Can You Dismiss Someone on a Zero Hour Contract? 

Yes, you can dismiss a zero hour worker. But you should follow proper procedure in accordance with any local labor laws, and your agreement with the employee.

What Happens When You Reject Work on a Zero Hour Contract?

Your employee should be able to reject work within reason without the fear of negative consequences, like not being offered work in the future. 

If it is a regular occurrence, then you may want to consider talking to the employee and ending the employment contract.

Do You Get SSP (Statutory Sick Pay) on a Zero Hour Contract?

In the UK, employees on zero hour contracts might be eligible for SSP (statutory sick pay). Please refer to the UK Govt. Website for details.

What is an Example of a Zero Hour Contract?

An example could be a zero hour agreement between a retailer and a cashier. The retail business could ask the cashier to come in to work when needed (holiday season, for example) without having to guarantee them minimum hours regularly. 

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