A zero-hour contract is an employment contract that stipulates an employer does not have to provide an employee with a minimum or guaranteed number of working hours.
The employee could get scheduled for a full week, or for nothing. And the salary? It's paid out accordingly, only for the hours worked. Straightforward enough. The arrangement isn't just one-sided though, with the employee at the whim of the employer. The employee can, for whatever the reason, simply say "no" to hours offered.
Sometimes called casual contracts, these characterize the talent signing them as "workers" rather than "employees," as in the case of traditional or indefinite contracts. And that distinction isn't just semantic; it's legal. It's about rights, protections, and benefits.
When are zero-hour contracts used?
Employers that use zero-hour contracts typically experience fluctuations in demand or rely on on-call scheduling. Companies in the hospitality and retail industries commonly use zero-hour contracts to hire seasonal workers or extra staff on short notice.
For example, an employer might ask a worker to work 30 hours one week but only eight hours the following week. Or, an employer may ask a worker to assist with a special event that requires extra staff for a specific task, such as catering for a wedding.
Zero-hour contracts accommodate workers seeking flexible work schedules, such as a parent caring for a dependent, an individual with another job, or a student needing to schedule around their school classes.
Benefits of zero-hour contracts
Zero-hour contracts offer benefits to both employers and workers.
Some advantages of zero-hour contracts for employers include:
- Flexibility. Employers hire staff according to the needs of their business. Employers can respond quickly and effectively to changes in demand, staff absences, and unforeseen events.
- Cost savings. Employers only need to pay workers for the hours they work and can schedule based on the available budget and company needs.
Some advantages of zero-hour contracts for workers include:
- Flexibility. Employees work when it suits their schedule and can accept or reject work.
- Supplemental income. Employees can use zero-hour contract jobs as a means of supplemental income in addition to other jobs.
- Work opportunities. Workers can gain experience in an industry and become familiar with the company's policies and culture. Zero-hour contracts also allow an individual to learn and grow in the position, which could lead to a permanent, full-time offer.
Disadvantages of zero-hour contracts
Despite the many benefits, zero-hour contracts also present disadvantages to both employers and workers.
Some disadvantages of zero-hour contracts for employers include:
- Misclassification. Employers risk misclassifying their workforce when hiring workers under several different contracts, such as indefinite contracts, fixed-term contracts, contractor agreements, and zero-hour contracts. Misclassifying zero-hour contract workers can result in fines, legal and tax implications, and even jail time.
- Payroll complications. Because zero-hour talent work irregular hours, complications may arise when an employer calculates holiday pay and annual leave.
- Uncertainty. Workers are free to reject the work that employers offer them, which can cause problems for employers, including being short-staffed and needing to hire additional employees to accommodate last-minute demands.
Some disadvantages of zero-hour contracts for employees include:
- Unreliable income. Zero-hour contracts do not guarantee hours or pay, and the individual's work hours might fluctuate significantly from one pay period to the next. The uncertainty is problematic for workers seeking financial security or who have specific budgeting needs.
- Dismissal risks. Unfair dismissal is difficult to prove when an employer reduces the worker's hours to zero rather than terminating their employment.
- Pressure. Although workers are not obligated to accept the work offered to them, they may feel pressured to take hours out of fear of not being offered hours in the future.
Do zero-hour contracts include sick and holiday pay?
Employees working under a zero-hour contract are entitled to statutory benefits, including sick pay and minimum holiday pay. However, the amount of compensation they receive depends on the average amount of hours they have worked.
Other entitlements under zero-hour contracts
Zero-hour contract workers are also entitled to other primary employment benefits and rights; however, these vary from country to country. A zero-hour contract commonly includes the following:
- Minimum wage
- Allotted breaks during shifts
- Paid annual leave
- Maternity and paternity leave
- Protection against discrimination
- Protection against unlawful deductions
- Protection from unfair dismissal
Are zero-hour contracts legal in the U.S.?
Zero-hour contracts are legal in the U.S. However, regulations on zero-hour contracts vary depending on the state, and the agreement between the employer and worker must comply with the local jurisdiction where the work occurs.
Zero-hour contracts are illegal in some countries, including New Zealand and Ireland.
In the U.K., they are primarily used for piece work or on-call work. Zero-hour contracts must provide the national statutory rights afforded to all employees.
How to manage zero-hour contracts with compliance
Employers should consider if a zero-hour contract is the best type of domestic or international employment contract for their business, depending on the nature and timeframe of the work needed, the worker's country of residence, and other business goals.But, employers must understand their legal employment obligations and the worker's statutory rights when offering a zero-hour contract.
An employer must also ensure talent working under zero-hour contracts know their rights. Contracts should be clear and transparent so workers understand the nature of the contract and work availability.
Let Pebl take it from here
Zero-hour contracts can get complicated quickly. And when you start using them across borders, in different countries, with different labor laws? That's when the risks can really start to pile up. Because here's the thing: what's totally legal in one country might be a huge problem in another. For companies hiring internationally, that matters, a lot.
So what do employers do? Well, bringing in help is always a good option. Pebl offers exactly that with our global Employer of Record (EOR) service. We've got the local laws covered-the nuances figured out-and we make sure your talent is classified the right way. To learn how we do it, contact us today.
Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided "as is," and no representations are made that the content is error-free.
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