The Truth About Zero-Hours Contracts

In recent years there has been a great deal of discussion in the UK press about zero-hours contracts and how they are used to exploit workers.  It is rare to find a positive word and there have been calls for such contracts to be banned.

Yet the majority of people do not even know what a zero-hours contract is.  And many of those who actually work on such a basis are quite happy to continue.  So what is the truth and should you consider offering zero-hours contracts to your employees?

In my many years of working in Human Resources, I have seen examples of zero-hours contracts which work extremely well for all parties. I have also seen evidence of exploitation.  The devil, as they say, is in the detail.  As with all things that involve people, the key is common sense, flexibility and  good intentions.  Where those factors are brought into play, this type of employment contract can work really well.

By the end of this article you will understand what is involved in  zero-hours contracts.  You will know the advantages and disadvantages of using them and what the changing legal picture around them looks like.

What is a zero hours contract?

There is no legal definition of  a zero-hours contract.  It is just a contract between a business and a worker which outlines how the work is done. So for employees it is an employment contract, but unlike other contracts of employment it does not specify a number of hours to be worked.

Typically, such a contract is offered where work fluctuates and an employer cannot anticipate how many hours per week might be needed. So in some weeks there is a need for, say, 37 hours (a full-time week) and other weeks might only require a few hours – or even none at all.

The benefit (and sometimes disadvantage) of such an arrangement is that there is no guarantee of any paid work at all in any given week.  For the employer, the benefit is that they only have to pay for work when it is needed.  For the worker, the advantage is that they can fit work around other commitments.  This type of contract is popular with students who can work and still find time for their studies.  Some parents of young children or people with caring responsibilities like these contracts.  It means they can manage work to fit around family or other commitments.

The agreement between the two parties is that the business may ask an individual to work for them, but there is no minimum number of set contracted hours.  The contract states what the individual will be paid if they do any work.  It also covers what will happen when they turn down any work that is offered.  There is a statement about what will happen if there is a change or cancellation of the work.

What are the advantages of a zero-hours contract?

If care is taken with introducing a zero-hours contract, it can be a working arrangement which works successfully for everyone.

For those who have read any of my previous articles, you will know that my first advice is always to consult with your employees .  If you have the kind of fluctuating work which would lend itself to this type of contract, then talk to the individual(s) concerned.  You can agree what might work for them as well as for your business. Beware, though, that this type of contract is not suitable for everyone.

Some people value the flexibility which allows them to balance work with studying or with caring responsibilities or other commitments.  But there are other ways of providing such flexibility.  In addition, there are other considerations with regard to things such as mortgages and other personal financial commitments.  Where possible, you  should accommodate the hours which individuals tell you they need to be able to work.   This will lead to a happier workforce.

For some workers, this might not be the only job they have.  They use it as a way to top up their income without having to commit to a specific number of hours per week.   For others, it may be a way to gain experience in a specific type of job or industry.

Why are zero-hours contracts not suitable in some cases?

If you want to use zero-hours contracts, then you must ensure that you provide a contract which details what the payment will be for any hours that are worked.  You must also  agree and specify what will happen when work is cancelled at short notice.

Someone may have to make specific arrangements in order to be able to do the work on offer (childcare, for example).  It can be costly and difficult if the work is cancelled with little notice.  It is sensible to agree between you what is workable notice and what is not.  Where the notice you can give is shorter than the notice period agreed in the contract, then you may want to agree to pay compensation.   Whatever you do agree with an individual, this must then be spelled out in a written contract.  That will avoid any conflict at a later date and will  help to give the worker some confidence in the arrangement.

For some people, the variability of the work and thus the earnings can cause financial hardship and contribute to stress and anxiety.  Where people have financial commitments, mortgages, loans, etc, they need to have a regular income and zero-hours contracts cannot supply that.  They may also need to show regular hours in order to be able to access such financial arrangements.  You should discuss these things with individuals prior to agreeing a zero-hours contract.  That will help to ensure that they have taken these factors into consideration.  A failure to do this can contribute to mental health issues, such as stress, depression or anxiety.

Things to consider when implementing a zero-hours contract arrangement

There are some things which any good employer will consider before implementing such a contract:

  • Think about the nature of the work you have on offer and how it fluctuates. Will this be a short-term issue, or do you need a longer solution?  Does the type of work lend itself to being carried out on this type of contract? Does the work have to be done by a specific deadline?  Are there other types of flexible working arrangements or employment practices which might suit this type of work?
  • Consult with the individual(s) who will be impacted. Does this type of arrangement work for them?  Have they thought about financial implications?  Do they need to have a guaranteed minimum number of hours?  How much notice do they need for some work to be offered? How much notice should you give if you need to cancel the requirement to work, or change the number of hours?
  • Consider the employment status of the individual. Will they be an employee of your business?  Or will they be self-employed and providing work and invoicing direct or through a third-party?  Can they refuse work offered?   What happens if they want to do some work for other people?  Can they provide a substitute if they are not available?  Will they provide their own equipment and tools?

Other things to think about

  • Make sure the contract  is clear about the agreed terms, particularly the employment status, the payment due and any cancellation agreements. If you agree a minimum number of hours, then you must specify that. You must also include provision about the obligation or otherwise to accept work offered.
  • If you intend that the worker will be an employee of the Company, then you are required to provide an employment contract which includes terms and conditions of employment in line with other employees.
  • It is helpful for you to regularly review the situation with the employee.  This is a chance to decide whether the employment relationship has changed and whether the arrangements still work for both parties. Such review should be on an annual basis, at least.
  • You may need to provide training to line managers to ensure they understand the implications of zero-hours contracts.  They need to know how to manage the work and the individuals who are contracted to do the work.
  • You should ensure that people doing the same job, whatever their employment status, are paid comparable rates of pay.

The changing legal picture

Since 2015, if someone is employed under a zero-hours contract, then it is against the law for their employer to prevent them from working elsewhere.   So an employer cannot include a clause in a zero-hours contract which excludes the person from working somewhere else.

In July 2017, the Taylor review on modern working practices was published and the UK Government has issued its response.  Many of the recommendations have been accepted by the government and some are currently under consultation.

The two major proposed changes with regard to zero-hours contracts are:

  • To give workers, including those on zero-hours contracts, the right to request a more predictable contract;
  • The possibility of paying a higher National Minimum Wage and National Living Wage for hours which are not guaranteed as part of the contract.

Beneficial for business

The Trades Union Congress (TUC) in UK has called for zero-hours contracts to be banned.  One of the reasons cited is that their research shows that most workers on zero-hours contracts feel exploited and want to be able to work more hours on more stable contracts.

Since 2017, the fast food chain McDonald’s has offered its  UK workers the option to move from zero-hours contracts.  Workers can move to fixed contracts with a minimum number of guaranteed hours per week.   McDonald’s has offered this change because some of their staff complained that they had difficulty in some financial arrangements  because they lacked guaranteed employment.

McDonald’s ran a trial across some of their sites, but 80 per cent of workers in the trial chose to remain on their current contracts.  This is in contrast to the TUC findings above. McDonald’s now offer employees the choice.

The benefit to McDonald’s has been an increase in employee satisfaction.  They believe this is because they consulted with staff about their hours.

If you think this article is useful and you would like more advice on dealing with this  – or any other people-related issue in your business – please join our mailing list, or contact us for further guidance.

The Facts You Should Know About IR35 Tax Rules and Your Contract Workers

If you have had difficulty in recruiting skilled staff to undertake specific projects, then you may  have turned to the contract world.  In some industries the way to ease recruitment has been to use contract workers.  This is particularly the case in the IT world.  Technology changes fast and it is difficult and costly to keep trained employees.

I have worked in Human Resources in both the public sector and private sector for some years. So I know the difficulties employers face when it comes to recruiting technologically adept staff.

IR35 Tax Rules are coming to your contractor workers soon

The UK government is currently consulting on the intention to introduce IR35 tax rules to the private sector from April 2020.   These rules have applied in the public sector from 2017.  But many private sector employers are unaware of the rules or the implications for their business.

In a nutshell, the proposal is that private sector employers who use contract workers will become responsible for deciding whether to deduct tax and national insurance from those contractors, via payroll.  They would be classified as falling within IR35 tax rules. This would effectively give the contractors employment status.  They would be able to claim benefits enjoyed by other employees, such as holiday entitlement, sick pay, redundancy pay, etc.  They would be taxed as an employee and it would be your responsibility as an employer to deduct that tax.

What have we learnt from the public sector?

This legislation has been in effect in the public sector since 2017.  It was brought in to combat tax avoidance by contract workers.  If they  were providing their services via an intermediary (often a limited company) then they would be subject to different tax rules.  They might otherwise be taxed as an employee.   There have been some high-profile and costly cases to determine whether or not an individual is considered an employee and  what the costs of that decision are for the employer.

Contractors have been widely used in recent years as a way to circumnavigate recruitment difficulties.  This has been particularly prevalent in the IT industry, where there is an ever-changing skills requirement for projects.  There is a need for existing employees  to learn new skills regularly, in technology which may only turn out to be short-lived.  This has been prohibitive for business in terms of cost and capacity.   In such a fast-changing environment,  it has proved beneficial and cost-effective to use contractors.

What do I need to do about IR35 for my staff?

But from April 2020 in the UK, the onus is likely to fall on private sector employers to make tax decisions regarding these contract workers.   If your business relies on contractors, then you should start to consult with them now about these proposed changes.

There are various ways to determine employment status.  You will need to consider what applies to your contractors and what does not.

Some of the considerations are:

  • Do  you require your contractors to be in a set workplace at a set time.  Do you expect a set number of hours of work per week? Or can they work the hours they choose, in the place they choose to do it.  Do they have to complete a time sheet, or just raise an invoice for the work they have done?
  • Do you provide equipment (eg. computers) and do you expect the contractors to use that  equipment? Or do you allow – or even expect –  them to provide their own equipment?
  • Do you expect contractors to undertake training provided by your company for its employees?
  • Are your contract workers free to take time off whenever they want to?
  • Do you insist that they take a specific amount of time as holiday?
  • If they are not available for work (for example if they are sick), do you expect –  or allow  – your contractors to provide a substitute to do the work?
  • Do you expect contractors to work exclusively for you, or are they free to provide services for other companies as well?
  • Do you provide transport or uniforms or accommodation for contractors?
  • Can they make use of subsidised canteens or gym facilities, etc (ie. employee benefits)?

Some of your answers to these questions may be rather vague, or dependant on such things as security considerations.  The answers  will not absolutely guarantee whether or not someone is considered to be an employee.  But they are all things which can help to determine the true nature of the relationship.

 Why do I need to think about IR35?

The government consultation goes on until the end of May 2019.  Expectations on employers will be more clear once the consultation is finished.  However,  it is very likely that you will be asked to decide on whether your workers are truly self-employed or should be taxed as employees.

It is worth beginning these discussions now.  You will then be able to make an informed decision about whether or not to deduct tax from payroll and offer employee benefits from April 2020.

Start discussions with your contractors so that they know that you are aware of the implications. You can be sure they are nervous about it themselves.   A frank discussion will help you both to prepare for any tax changes and decide how best to deal with any impact on either the individuals or the business.    It won’t do your reputation as a caring employer any harm either.

If you think this article is useful and you would like more advice on dealing with this  – or any other people-related issue in your business – please join our mailing list, or contact us for further guidance.

Apprenticeships, Interns, Work Placements – What Is The Difference?

There are so many different ways of employing graduates, school leavers, or people who are still studying.  So what is the difference between all of these different work placements? In some industries, these students or ex-students are the mainstay of the business.

You have some work which you think might be suitable to offer on this basis, but it is confusing to know whether to offer an apprenticeship, an internship or a work placement.  Or maybe you just need to advertise the role as normal. Then  anyone can apply,  whether or not they have recently been through the education system.

By the end of this article, you will understand the different options. And you will know which one is the most relevant route for you to explore in your business.

Apprenticeships are for manual work, aren’t they?

You may think that apprenticeships are only for manual work.  The short answer  is “No, they are not”.  An apprenticeship can lend itself to any type of work which requires training in order to do it properly.

Traditionally, apprenticeship was the route for working in manufacturing or construction.  In recent years, though, apprenticeships are offered in a wide range of industries, from IT to marketing, to accountancy.

How long is an apprenticeship?

An apprenticeship is for the longer term.  Generally at least one year.  More often two or three years – depending on the level of the qualification achieved by successful completion.

An apprentice is your employee.  They must be in a real job which offers the opportunity to gain the knowledge and skills they need to pass their assessment.  As an employee, they must be paid in accordance with National Minimum Wage regulations.   Additionally, you must offer apprentices the same terms and conditions which you offer to other employees in similar roles or grades.    But an apprentice must spend 20% of their time in formal training.  You must pay them as normal whilst they are training and you must also fund the training, with some help from the UK government.

The advantage is that you grow your own skilled talent, with the skills your business needs.  You improve your staff retention and productivity and you can reduce your recruitment costs. If the apprenticeship works well, it is common for employers to offer a permanent role, even promotion, to an apprentice once they have finished their apprenticeship.

What is an Internship?

You may want to offer an internship to an undergraduate or student. They can be offered to other people as well,  but are normally offered to students.  An intern would normally work for you for a fixed period of time – normally between one and three months.  This is a way to employ students during term time (usually part-time), or during their holidays.  It is a chance for them to learn about your industry and to gain some experience of life at work.  It is also a chance for them to learn about interacting with others in the workplace.

How does an internship benefit the employer?

As an employer, the advantage is that you benefit from the intern’s labour.  It is up to you what level of work you give to them.   The emphasis is on the training they gain, rather than the type of work they do. You may start off with fairly basic photocopying, filing, etc.  Then you can move them  onto more in-depth work as they prove their capability. Many companies employ interns for a fixed number of weeks or months to support a specific major project or event.

It can also help with recruitment costs further down the line as surveys show that graduates often return for permanent employment once they have completed their education.   The advantages are obvious – you already know the person and they understand your industry and company, not to mention the job they will be doing.  They will require less training than other candidates.

Even if the internship is only for a short period, it can really benefit the individual by providing a range of transferable skills and helping them to network and build valuable connections.  It can even provide employment references.

Do I have to pay an intern?

There is no obligation to pay an intern. You may have seen some discussion in the press about whether it is exploitation to offer only voluntary internships.   As a result, it is more and more the norm for employers to offer payment for internships. In industries where there is competition for student labour, it is beneficial for employers to pay well for internships.

How is a work placement different?

A work placement is often arranged through a school or university and is a short term placement of a student in the workplace.  The placement may only be as short as a week or a couple of weeks, especially if the student is still in school, rather than further education.

A placement is really only a chance for the individual to get a taste of the world of work.  It may be their first exposure to arriving at a set workplace at a set time.  They may have only had limited interaction with adults other than parents and so it is a chance for them to test out life skills such as personal interaction.

As an employer, you may get some fairly basic work achieved, although you need to try and give an overview of the whole company or industry.  This is part of introducing young people to the type of work they may consider in the future, so a broad view is helpful at this stage.  If you can make their time with you interesting and they learn something, then that is even better!  You need to consider this as part of your overall recruitment strategy.  If you engage their hearts and minds while they are young, they will come back to you for permanent work once their education is finished. Alternatively, they might be future customers.  So you would be wise to make this a positive experience.

What about University work placements?

In a similar fashion, you may be asked to offer work placements to students as part of their University studies.  If it is a requirement of their study, then the University will have set ideas about what they need you to provide as an employer.

The placement might be needed for a few weeks, either during term-time or the holidays.  Alternatively, depending on the course the student is following, there may be a request to offer work placement for a day per week over a set period.

There is no obligation – or even expectation –  to pay for work placements, particularly where you have been approached by a school or university for a short-term placement.  The exception to this would be where a “sandwich placement” of a whole year in industry is a requirement of the course.  If you are providing work for a student for a year, then you would be expected to pay a reasonable wage in exchange for their work.

Can a small business offer any or all of these opportunities?

As a small business, you are in a great position to be able to offer students some fantastic practical experience.  The very nature of a smaller business is that you are more likely to offer the chance for people to work on their own initiative and to develop their own ways of working.

If you get the right person, who has a good aptitude for learning and for the type of work you do, then you may find they are a real asset to your business.  It is common for smaller businesses to offer permanent employment to people who they have supported through an apprenticehip.  Or to employ someone who has been an intern or had a work placement with them.

At the very least, you may find the same person comes back year after year, holiday after holiday for the chance to work in your business .

If you think this article is useful and you would like more advice on dealing with this  – or any other people-related issue in your business – please join our mailing list, or contact us for further guidance.