The contracts are common in sectors that find it difficult to manage the financial demands of permanent employees due to the fluctuating demands of work. For example, 48 per cent of staff in the hotel, catering and leisure industries are employed on zero-hours contracts, along with one-tenth of retail staff. However, it was also reported that one-fifth of Essex County Council staff are signed onto a zero-hours contract while universities and colleges are twice as likely to employ staff in this way.
There has been much negative press around zero-hours contracts and Vince Cable has stated that they are been used to ultimately exploit workers and are being abused by employers. So why do they exist altogether?
Zero-hours contracts are completely legal, and they are what temporary contracts have been based on for many years – if you don’t work any hours, you don’t get paid any money. Temporary contracts are vital to our economy and they are also the best form of employment for a significant proportion of society who need and want to work in this way.
In this hostile environment you need to get the law right. Here’s what you need to know.
Zero-Hours contracts – the right way
Zero-hours contracts should be used on a need-only basis and are designed for use in industries or types of work where difficult-to-find or seasonal workers are needed on a fluctuating basis. Non-guaranteed hours allows companies to draft in extra staff at short notice to cover busy periods or when let down by their existing employees. These contracts only become a problem when they are used by employers to back out of their obligations to their employees, which has been made more common since the introduction of the Agency Workers Directive (AWR).
For the worker, these contracts are particularly useful to those who want a flexible working arrangement, such as fitting in employment around studying, being a parent or a carer, for example. But businesses must remember that staff on these contracts should not be treated as though they are ‘on call’, they must be able to turn work down, without prejudice, if it does not fit in without their schedules.
Even under zero-hours contracts, employers must ensure that proper support for employees is made available and their rights are not compromised, nor are they penalised for needing more stability in their working hours and earnings.
However, employers must bear in mind that should a staff member on a zero-hours contract get into a pattern of working a minimum or regular number of hours within a set period, this will override the contract itself. The individual would then be entitled to keep those minimum hours and the original contract would be invalid.Our advice is: If there is no genuine need to implement a zero-hours contract, then do not use them.
When to use a fixed-term (Temporary) contract
Fixed-term and temporary contracts should only be used for transparent and objective reasons, i.e. there must be a genuine temporary or fixed-term need for a member of staff – this could be to work on a specific project that requires an additional workforce or to cover maternity leave, for instance. Both the employer and employee should ensure that they agree the contract will be fixed-term before employment begins.
Fixed term or temporary contracts contain a pre-determined end date which can either be a specific calendar date or follow an agreed length of time. By name, the contract must end after the fixed-term, but it may be renewed if there is a need. Employers must be careful to ensure they do not trigger an unfair dismissal if a contract is terminated. This could be, for example, by not providing a fair reason as to why the contract was not renewed, such as work on a project was set to continue.
If a temporary, fixed-term contract is renewed back-to-back over a period of four years, it will automatically default to a permanent contract, thus nulling the existing temporary contract.
When self-employed contracts work
A self-employed contractor can be brought in when there is a need for additional work on a non-permanent basis. However, different regulations apply compared to a fixed-term temporary contract, particularly around tax responsibilities (IR35). Self-employed contracts are ideal for organisations whose workforce is at full capacity, yet there is not a business need to take on a permanent additional staff member. However, there are a number of considerations that employers need to make.
Firstly, a contractor is not there to work under the same conditions as a permanent employee. For instance, they cannot be asked to work exclusively for one company or be made to use only the temporary employer’s branding. A self-employed contractor is also obliged to handle their own taxes, and are therefore entitled to certain tax breaks. Should an employer begin to treat the self-employed contractor as though they were a full-time salaried employee – by giving them the same responsibilities and hours over a prolonged period, for example – then their contract would convert to a permanent agreement. This would make the employer responsible for paying tax on the employee’s behalf, including PAYE and national insurance, and they would be responsible to HMRC for this.
The key to this contract is understanding what a ‘contractor’ role looks like and not using this type of employment as a means to avoid paying national insurance. Employers should also fully understand their obligations towards self-employed contractors as they still cannot be dismissed unfairly, for example.
Managing lay-off (short time) working clauses
A ‘short time’ working clause can be inserted into a regular permanent contract and means that if a business suffers a lull, workers can be sent home with just a small token payment.
This is a good option for when an employer fully expects work to pick up again within a couple of weeks and it eliminates the need for more drastic action such as redundancies or other types of contracts that may not prove to be genuine. However, if an employee is temporarily laid off for four weeks or more then they may be eligible for a redundancy pay out. The same goes if they do not work for six cumulative weeks in any 13-week period, so care must be taken to avoid this.
Short time working clauses are a practical solution to a complex contractual situation. Many prospective employees will not apply for jobs if they are advertised as temporary or zero-hours, which can lead to employers losing out unnecessarily on the best staff. This clause can therefore help employers to employ permanent staff, but who may feel financially vulnerable during unstable times.
Choosing the right contract
Temporary contracts are vital to our economy, both for employers and employees. It is crucial to understand that all of the above options have great benefits when used in their intended ways – and are not exploited for an employer’s benefit. The recent criticisms and media hype should not put businesses off implementing zero-hours contracts, however, they should only be used when there is a genuine business need. If you are in doubt over the best contract for your recruitment demands, then you should contact an employment advisory service.
Charles Orton-Jones is a professional business writer.
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