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There has been a lot of news and comment in the media and on TV recently about zero-hours contracts, but do you actually know how they operate?

The-Queen-laughing buckingham palace use zero hours contracts

Buckingham Palace use zero-hours contracts

Put simply, they are casual contracts that allow employers to hire staff with no guarantee of work. This means that employees only work as and when they are needed by employers, often at short notice and are only paid for the hours they work.

But not all zero-hours contracts are the same, some oblige workers to take the shifts they are offered, others do not. In others sick pay and holiday pay are included, whilst not in others. Confused? Read on………….

Who is on them?

Official figures from the Office for National Statistics show that approximately ¼million UK workers are on zero-hours contracts, which is 1% of the UK workforce.

But this is where the arguments start as a survey of employers by the Chartered Institute of Personnel & Development (CIPD)  estimates that the real number is more than a million, with one in five employers having at least one employee on zero-hours.

A number of high profile employers were highlighted as favouring this type of contract, including, Pub chain JD Wetherspoon (80% of its staff ),  retailer Sports Direct (87% of staff) Cinema company Cineworld (85% of staff) as well as most London councils and even Buckingham Palace.

Why are they so controversial?

There is mounting concern that zero-hours contracts do not offer much, if any, financial stability and security, with many workers on zero-hours contracts not being given enough hours (The CIPD research found that 16% of workers fell into this category). This has knock-on effects on workers getting mortgages and credit cards without the guaranteed income of a traditional employment contract.

Secondly, employees on these contracts do not have the same employment rights as those on traditional contracts, with many critics claiming that the contracts are being used to avoid an employer’s responsibilities to its employees. The CIPD warns that some employers take advantage of zero-hours contracts by using them as a management tool by offering more hours to employees that “behave” and fewer to those who cause trouble.

There are also claims by the trade unions, that zero-hours contracts are being encouraged by the Coalition as part of a giant Government conspiracy to lower the unemployment figures. Whilst I’m not a big fan of the Coalition’s policies on getting people back to work, I think the TUC conspiracy theorists are a little fanciful, especially as they also believe that the Americans didn’t land on the moon.

Why are increasing numbers of employers using them?

Employers say zero-hours contracts allow them to take on staff in response to fluctuating demand for their services, especially in the service sectors and businesses that are seasonal, such as tourism.

Tony Benn certainly doesn't approve of zero hours contracts

We’re certain he doesn’t approve of zero hours contracts

Employers also claim that many workers appreciate the flexibility a zero-hours contract gives them and cite the CIPD statistic that 40% of workers described themselves as being employed full-time, despite having a zero-hours contract.

In the CIPD report, it found that in fact the majority of employers use zero-hour contracts, not to avoid giving employees their rights, but to avoid paying fixed overheads and giving them flexibility over their workforce. This flexibility is envied by other struggling European economies, such as Spain and Greece, where many employers are dissuaded from taking on staff, because of draconian redundancy costs.

Overall, are zero-hours contracts good or bad?

There is no doubt that at one end of the market there is some exploitation taking place and many workers struggle to cope with the uncertainty of what they are likely to earn each month.

On the other hand, the level of flexibility offered by the contracts suits many workers and employers. Also, there is very little doubt that thousands of individuals are now working, instead of being on the dole, because of them.

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David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and a graduate of Liverpool Collegiate Grammar School, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David’s depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire’s most respected Accountancy Practice. Email David