Government consults on end of zero hour contracts

Sara White, Editor, Business & Accountancy Daily. Croner.

Proposal for eight to 20-hour threshold, penalties for late cancellation of shifts and agency workers in scope as government sets out detailed plans to end zero hours contracts in clampdown on ‘one-sided flexibility’.

This is the first detailed proposals on the practicalities of iending zero hour contracts, which are a key part of the transformational Employment Rights Act 2025. The eight week consultation will provide the opportunity for employers and businesses to feed back on the implementation plans. The final details on the policy and practical guidance will only be finalised once the government has reviewed the consultation response.

This means there is still a chance for employers to influence the final framework before the government develops ‘final policy positions’, according to the 85-page consultation document issued by the Department for Business and Trade (DBT).

The government is calling on employers, unions and employees to respond to the 85-page consultation, with an online survey to make it easier for stakeholders to give responses in a structured format.

The reform of zero hours contracts is part of the government’s ambitious plan to extend workers’ rights under its Make Work Pay agenda, and further statutory instruments need to be passed to set out in the detail in statute. So far, a start date for the new rules has not been confirmed.

However, businesses are concerned about the policy creep with unintended consequences for low paid workers and the risk of raising unemployment figures further.

Neil Carberry, chief executive, Recruitment and Employment Confederation (REC), said: ‘It is disappointing that the government has drifted so far from the original proposals agreed by businesses and unions in the Low Pay Commission, towards something that pleases the unions but will damage work opportunities for vulnerable workers, especially those who need flexible work.

‘Despite commitments given last autumn, there has been little evidence of government taking business concerns on the cost of employment seriously enough, with predictable results starting to emerge in monthly labour market figures.’

But the government says the current situation creates ‘one-sided flexibility’, putting employers in too strong a position.

Peter Kyle, secretary of state for business and trade, said this has ‘real consequences for their financial security and well-being’ of workers.

It is important to note that there will not be an outright ban on zero hours contracts, although there will be more protections for workers hired on that basis when the new rules come into force. 

Kyle added: ‘We are not banning zero hours contracts as we do not want to take away flexibility for these groups. The zero hours measures in the Employment Right Act will ensure all jobs provide a baseline level of security and predictability, ending exploitative zero hours contracts.’  

Under the new rules, employees will have the right to:

• guaranteed hours, where the number of hours offered reflects the hours worked by a qualifying worker during a reference period;

• reasonable notice of shifts and changes to these; and

• payment for shifts cancelled, curtailed or moved at short notice.

The framework will also apply to agency workers, pre-empting a potential ‘loophole for employers to avoid the new legislation,’ the consultation stated.

The consultation presents a range of options on how different thresholds and timeframes would interact with each other and affect both workers and employers, including across different sectors. This approach aims to ensure the government can work with businesses and unions to ‘identify the optimal balance that ends exploitative zero hours contracts while maintaining necessary business flexibility’.

On the threshold length, the government’s preference is to set the threshold within the range of eight to 20 hours per week ‘on the basis that options within this range are more likely to provide a favourable balance of costs and benefits’. This could be pro rata over a month or year depending on particular arrangements.

There will be a new length of initial reference period, which could be 12, 26 or 52 weeks, with the consultation stating the government has slated the 12-week option as the best one.

Employers will be able to use limited-term contracts to manage periods of increased demand – for example, due to seasonal fluctuations, but the government will be defining this area tightly.

‘The government wants the definition of “temporary need” to be contained to what is necessary to ensure genuine temporary need is catered for and to ensure it aligns with the fundamental policy objective of ensuring many workers benefit from the reforms,’ the consultation document stated.

There will be very few exemptions, except say in the case of a business closure due to force majeure such as flooding or an unexpected calamity.

Exclusions will be extremely limited, with the government stating ‘one [excluded] group could be workers who have more than one contract with the same employer and one of these contracts exceeds the hours threshold’.

This is all part of the consultation process, hence the call for as varied and detailed response as possible, ideally via the online survey.

Ben Willmott, head of public policy at the CIPD, said: ‘Well-managed zero-hours contracts provide welcome flexibility for employers and people who want to work but cannot commit to fixed hours – including students, carers and those managing health conditions.  

‘It’s really important that there’s meaningful consultation on these new rights, including the reference period which will be used to decide the number of guaranteed minimum hours a zero-hours contract worker will be entitled to.

‘A longer reference period will be easier for employers to manage, but even with this, the new measures are likely to be extremely complex and challenging to comply with, particularly for small firms or those with fluctuations in demand.’ 

In the event of last-minute cancellation of shifts, the government is proposing a right to short notice payments ‘when they cancel, move, or curtail a shift at short notice’.

Failure to comply with the short notice payment rules once effective will come with new penalties to be enforced by the Fair Work Agency.

‘If the final regulations are too difficult to manage, employers will simply find other ways to achieve workforce flexibility. They are likely to rely more on self-employed contractors and fixed term contracts, for example, potentially resulting in more rather than less insecure employment,’ warned Wilmott. 

The consultation closes for comment at 11:59am on 25 August.

Useful links

DBT consultation, Reforms of zero hours and similar contracts and Online survey