Zero-hours contracts ban: how can agencies prepare?
As the new Labour government gets their feet under the table, UK employment law is on the cusp of significant change. This includes a ban on “exploitative” zero-hours contracts which allow employers to only pay staff when they need them.
This move, while having the worthy goal of creating “more and better jobs” and enhancing job security, has understandably left many businesses in a state of uncertainty. Recruitment agencies, in particular, are concerned about the impact this might have on their operations. Indeed, at Liquid Friday we have already been contacted by several agencies who currently employ contractors on zero-hours contracts on their PAYE payroll, often in sectors like healthcare and hospitality.
As these potential legislative changes loom, here we consider how recruitment businesses can proactively prepare for a shift away from zero-hours contracts, and how we can help agencies navigate this transition smoothly.
Use of zero-hours contracts
Zero-hours contracts, while offering flexibility, often come under scrutiny for perpetuating insecure working conditions. As the graphic shows, they are most prevalently used in sectors and industries where work is particularly adhoc or seasonal.
They effectively allow employers to hire staff without guaranteeing any hours of work, which can lead to unpredictable income and erratic work schedules for employees. This insecurity can result in financial instability and difficulty in planning for the future. Research also shows that zero-hours contracts disproportionately affect vulnerable groups, including younger workers, women and people from ethnic minorities.
Labour’s proposed ban on these contracts aims to address these issues by ensuring fairer working practices, where employees can have more predictable and secure working arrangements. Definitely commendable, but what does this mean for businesses in practice?
What could a zero-hours ban mean for agencies?
We’re already finding that a growing number of recruitment businesses are moving their PAYE contractors away from zero-hours contracts to alternative arrangements which offer minimum hours. However, those that still rely on zero-hours contracts should be prepared. Ultimately, the ban aims to provide more stable and secure and employment, but it could lead to several challenges, including:
Workforce reduction: Agencies may lose workers who prefer the flexibility of zero-hours contracts, or they may need to offer minimum hour contracts, increasing workforce headcount pressures. Over 20%* of businesses using zero-hours contracts do so to retain workers and prevent redundancies.
Reduced flexibility: Zero hours contracts have allowed businesses to adapt to fluctuating demand, covering absences or busy periods. The ban may limit this flexibility, making it harder to respond to short-term needs.
Misclassification risks: Some businesses might incorrectly classify workers as self-employed to maintain flexibility, risking legal issues if these arrangements don’t reflect actual working conditions.
Increased costs: Zero-hours contracts are often a cost-effective option compared to alternatives like part-time guaranteed hours contracts, overtime and annualised hours. Agencies therefore are concerned about the pressure a ban will put on their margins.
What can recruitment agencies do to prepare?
Review and preparation is key here! To get ready for the end of zero-hours contracts, we recommend agencies consider the following 3 steps:
- Workforce audit: Start by auditing your contingent workforce to identify how many contractors are on zero-hours contracts on your payroll. Understanding the scope of reliance on these contracts will help in planning the transition.
- Review employment practices: Analyse if your zero-hours contract workers are actually working regular hours. If they are, they may already be entitled to contracts that reflect these hours under the new regulations. This review will help prevent any expected legal issues once the law changes.
- Consider alternative contracts: For roles that genuinely require flexibility, such as part-time, annualised hours or a shift from PAYE to umbrella employment, which offers minimum hours contracts (more on this later!) These alternatives can offer similar flexibility while providing greater security to employees.
Umbrella employment as a viable alternative
While best practice starts with the above three step approach, moving forward, one viable alternative to zero-hours contracts would be to transfer workers to a reputable umbrella company. The PAYE umbrella employment model uses an overarching minimum contract, typically of 336 hours per annum, while ensuring workers receive all statutory employment rights, holiday pay and continuity of employment.
By using an umbrella company like Liquid Friday, agencies can maintain operational flexibility while offering their contractors greater job security and access to benefits. This approach not only aligns with Labour’s vision for better contract provisions for workers, it mitigates the risks associated with the end of zero-hours contracts.
Liquid Friday COO Joe Taffurelli explains:
“At Liquid Friday, we are committed to enhancing employee rights and ensuring fair working practices. With the anticipated ban on zero-hours contracts, it’s crucial for businesses to adapt to these changes to promote job security and stability. Using an umbrella company, such as Liquid Friday, is the silver bullet for this transition. It allows agencies to maintain operational flexibility while offering contractors the security and benefits they deserve. This not only aligns with the new legislative goals but also ensures a more engaged and motivated workforce.”
Scary…but good!
Change is scary, but we always look for the upside in any legislative reform as it often brings opportunities for growth and a better deal for the contractors and businesses we support. So, while the ban on zero hours contracts no doubt presents challenges, it also offers a chance for agencies to re-evaluate and improve their employment and workforce management practices. This in turn may have the positive effect of increased talent engagement and retention. By preparing now, agencies can meet the changes head on and ensure a smooth transition.
To find out how we can help, speak to your Liquid Friday Account Manager or contact the Head Office Team directly.
*As per CIPD