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Zero hours contract changes for small businesses

How new rules on zero hours contracts could affect small businesses

Business secretary Vince Cable recently announced government plans to ban exclusivity clauses in zero hours contracts. I’ll outline the legal issues surrounding this increasingly popular type of employment contract and explain what the changes could mean for small businesses.

What are zero hours contracts?

There has been much talk of zero hours over the last few years. Possibly as a result of the recession, which has led to fluctuating orders for many businesses, it’s become necessary to consider alternatives to reduce the expense associated with full time employees. The zero hours contract is a type of employment contract which, as the name suggests, does not set any hours of work and means that you only need to pay for your employees’ time when you set them work. Although some employers see this as a practical cost saving measure, providing them with an on-tap resource without the constant financial drain of a full time employee, many argue that it leaves employees without any sense of security and reduces workforce motivation.

What are the proposed changes?

One of the most controversial aspects of zero hours contracts is that some contain an exclusivity clause. This essentially bans employees from working for other companies during their employment. While this is all well and good if they’re given enough hours, if there is too little work or none at all this leaves members of staff in a very difficult position; not only are they not getting paid but they can’t seek work elsewhere. It’s this situation the government is trying to tackle, following a consultation, by proposing a ban on exclusivity clauses in zero hours contracts. The Small Business, Enterprise and Employment Bill has been introduced to Parliament and, if passed, it will make it illegal for employers to include these types of of clauses.

How will the changes affect small business?

If you currently use zero hours contracts, it’s vital that you review these to ensure that you’re prepared for the new rules. You’ll need to alter the employment terms and conditions, removing any exclusivity clauses, and agreeing the changes with your employees. If you need to carry on using exclusivity clauses, you may want to consider different types of employment contracts which will still allow these following the legislative changes. Alternatively, agency workers or independent contractors may be better able to fulfil your temporary resourcing needs.

Pros and cons of zero hours contracts

According to figures from the Office of National Statistics, around 2% of workers think they’re on zero hours contracts and they work an average of 25 hours a week. Most of these workers are either students, aged 16-24 or over 65. Many zero hours employees will actually find that this type of contract suits them, benefitting from the same type of flexibility as their employers. The main advantage of using zero hours contracts for small businesses is that employees are only paid for time spent engaged in work. This helps to deal with the situation of fluctuating orders or lulls in business. However, managers may find that zero hours employees are less motivated or committed to the company, particularly those who would prefer to be on full time contracts.

Tips for dealing with zero hours contracts

  • Remove any exclusivity clauses to prepare for the new rules
  • Only use zero hours contracts where necessary and suitable
  • Ensure that zero hours employees are happy with the arrangements
  • Keep strict records to ensure you abide by working time regulations and can calculate holiday pay
  • Do not require workers to be on “standby” or “on-call” without including this time in pay calculations
  • Ensure that work is distributed amongst zero hours workers fairly and does not open you up to any potential claims of discrimination

Alex Heshmaty

Alex Heshmaty is an experienced legal writer, with a particular interest in the field of employment law. He writes for a variety of publications and his articles have appeared in The Guardian as well as regularly being featured in the Internet Newsletter for Lawyers.
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