The disadvantages of zero-hours contracts

Zero-hours contracts are one of the few HR topics to hit the mainstream media – and the disadvantages for employees are well documented.

But for businesses, the risk vs reward calculation is more complex. It requires an analysis of how your staffing structure fits into your overall strategy for growth.

When Zero-Hours Contracts Backfire On Businesses

There are many reasons a zero-hours set-up might appeal.

You have the flexibility of taking on workers as and when you need them. There is no requirement to pay a static salary, and you can adjust staffing according to demand.

That doesn’t always run smoothly though. The disadvantages of zero-hours contracts include:

  • Lack of worker commitment – most zero-hours staff will have one eye on the door and won’t necessarily prioritise your business’s needs.
  • Short notice demands – it’s tough at the best of times to fill workforce gaps on short notice, and even more so if your pool of workers aren’t tied into the position.
  • Inconsistencies – roles requiring a particular skill are best performed with consistency. Varying workers means a difference in work quality and service delivery, which can impact your customers’ experience.
  • Pay complications – you’ll need to calculate factors such as pro-rata holiday pay, which can be tricky and lead to potential disputes if there are any disagreements about rights to benefits.

It’s up to each business to consider what you need from your workforce and how best to respond to fluctuations in staffing needs.

Zero-hours contracts aren’t always problematic but need to be structured to meet the needs of both employees and managers.

Paying benefits to zero-hours contract workers

One of the pitfalls we’ve identified is the complexity of paying benefits to zero-hours workers.

Along with scenarios such as gifts of shares of private limited company assets, it’s crucial to get your payroll, returns, and records right.

The standard employment law applies for zero-hours employees, so you’ll need to pay at least the national minimum wage and provide benefits like holiday pay.

To calculate holiday entitlement, you’ll need to prorate the statutory holiday entitlement over the hours worked.

That means:

  • The standard 5.6 weeks per annum of holiday entitlement apply, with or without bank holidays, depending on your business policies. That figure is then divided into weeks and hours worked throughout the year.
  • It’s easiest to work out zero-hours benefits on an hourly basis, which means they should receive holiday allowances based on 12.07% of the hours worked.
  • If your zero-hours team member works ten hours a week, they will earn 72 minutes of paid leave – and you’ll need to repeat that calculation for every week they are required.

If a zero-hours member of staff leaves, you will still need to pay them for any leave entitlement they haven’t used.

The difference is that if they don’t work for you for four weeks, you can consider it an end of their employment – unless you offer more hours in the future.

The controversy of zero-hours working arrangements

Deciding whether or not to offer zero-hours work depends on multiple variables and how flexible your staffing structure needs to be.

Should you decide it’s a viable option, it’s crucial to ensure your contracts and payment processes comply with every aspect of employment law.

Much of the controversy around zero-hours work relates to lack of staff parity because there are fewer entitlements and often an imbalance in how businesses value their casual workers.

Can a director be forced out if shareholders object to zero hours employment policies? Probably not.

Could it cause contention and disputes if staff are paid at varying rates for the same kind of work? Possibly.

Provided zero-hours workers are fairly remunerated, understand the pros and cons of the flexible working conditions, and are comfortable that this fits their employment needs, it can be a successful arrangement.

Your business should pay careful attention to factors such as holiday pay to ensure it isn’t going to create a backlash or increased admin burdens that you could have avoided with a bit of front loaded work.

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