Should you use zero hour contracts?

Zero hours contracts are popular in our sector, according to the Office for National Statistics (ONS), and used by more than half of hotel and catering businesses. Although media coverage of zero hours contracts has been largely negative, they do offer flexibility that suits certain people.

Two thirds of those on zero hours contracts do not want to work more hours, says the ONS, suggesting the majority are satisfied with the arrangement. Zero hours contracts are not new. McDonald’s has been using them since it first opened in the UK in 1974. Its website says: “Many of our employees are parents or students who are looking to fit flexible, paid work around childcare, study and other commitments.” Zero hours employees, on average, work 25 hours per week.

In May, the Small Business, Enterprise and Employment Act 2015 outlawed the use of exclusivity clauses in zero hours contracts, which prevent people from working for another employer. The principle of banning exclusivity clauses is correct; if your contract gives you no guaranteed work, you should be free to seek it elsewhere.  In theory, it makes the employer- employee relationship more equitable.

For employers, the main benefit remains; you only pay when work needs doing. However, there are some drawbacks to using zero hours contracts, which may make alternatives more effective.

First, a zero hours contract is simply a contract of employment where there are no guaranteed minimum hours and the employee is only required to work when called upon. Other terms of the contract have to be the same (pro rata) as for full-time employees, since otherwise the employer could fall foul of the Part Time Workers Regulations. How do you decide what sick pay and holidays this person is due in order for them to be equivalent to the full time staff?  Also, how do you keep the appropriate records? This can be an administrative headache.

Second, a zero hours contract does not remove employment rights such as claiming unfair dismissal, redundancy, discrimination or even a TUPE transfer. Thirdly, there is the cost of staff turnover. An employee who requires a regular income is always going to be looking for a job with the security of guaranteed hours and will move on as soon as possible. This might be difficult in some areas or roles but, as always, the best and most reliable staff will move first.

Suitable alternatives include annual hours contracts (where the hours may fluctuate but are guaranteed, and the pay is averaged out), part-time work (with voluntary overtime if necessary when times are busy) or casual agreements (to meet ad hoc requirements where there really is no regularity or pattern of work).

In addition, standard contracts of employment can have some flexibility by including either lay-off and/or short time working clauses. These enable the employer to reduce the work (and pay) to meet an unexpected downturn. Equally, you may include more flexibility in terms of requiring employees to use their holidays if you can predict a downturn in work.

By Peter Ducker. This article first appeared in the June 2015 issue of Hotel Owner