Government publishes consultation on reform of zero hour and low-hour contracts

Right to guaranteed hours:

• Low-hours threshold

To qualify for the right to guaranteed hours, a worker must be on a zero-hours contract or a low-hours contract. The intention behind the hours threshold is to include in scope workers who are guaranteed some hours, but experience unpredictability of hours and income in a similar way to zero hours workers.  The consultation seeks views on what that threshold should be. Options range from eight hours to 48 hours a week, with the government expressing a preference for a threshold between eight and 20 hours a week.

• Length of reference periods

Guaranteed hours offers must be calculated by employers based on the hours worked by a qualifying worker during a reference period. Low-hours workers will be eligible for offers if the number of hours they work during the reference period exceeds the minimum number of hours specified in their contract. Offers will then have to be made at the end of every reference period, until the worker no longer qualifies as a zero or low-hours worker.   

The government’s preference is for the initial reference to be 12 weeks long, however, the consultation asks for views on whether it should instead be 26 weeks, 52 weeks or another period.

The government also seeks feedback on the length of subsequent reference periods i.e. whether they should be the same as the initial reference periods, or longer (six months or a year are proposed) and whether they should begin immediately after the previous reference period.  

Rolling 12-week subsequent reference periods could increase the administrative burden for employers while longer subsequent reference periods such as 26 or 52 weeks, or subsequent reference periods with gaps between them, could reduce that burden, as the duty to make guaranteed hours offers would arise less frequently.

We think it likely the government will stick with its preferred 12 week initial reference period, with longer reference periods after it.

The consultation sets out a couple of scenarios on whether there should be gaps between reference periods. It explains that if there was a gap, the employer would not be required to record a worker’s hours during that gap for the purpose of generating a guaranteed hours offer. If there is no gap, the employer must always record the hours worked by an in scope worker, and every hour should be included in the calculation of whether a further guaranteed hours offer is required.  This latter approach seems sensible as at the end of any reference period the employer may need to offer the worker a contract setting out the guaranteed hours and the worker then has a period time to consider whether or not to accept the offer.  The consultation does not ask how long any gap should be – just whether or not there should be one.

• Regularity requirements

For a worker to qualify for a guaranteed hours offer, the hours that they work during the reference period must also satisfy conditions set out in regulations around regularity - the intention being that only workers who work regularly for their employer will be entitled to this new right.

The consultation presents two options here:

• weekly distribution requirement – the worker must have worked in a minimum number of weeks during the reference period (which do not have to be consecutive);
• weekly distribution requirement plus total hours requirement – the worker must have worked both a minimum number of weeks and a minimum number of hours above their contracted hours.

Qualifying for guaranteed hours would obviously be more difficult under option 2.  The government is seeking views on which option should be used, what the weekly distribution and, if applicable, total hours requirement should be and if they should be scaled if subsequent reference periods are longer.

Seasonal work and definition of ‘temporary need'

Employers engaging seasonal staff will be examining the government's proposals on short contracts.  The government have said that there is no obligation to make a guaranteed hours offer to a worker who is on a limited term contract that is shorter than the reference period, provided that the limited term is reasonable.  The consultation gives the example of a the worker who is only needed for 8 weeks to perform a specific task, and the contract terminates after it is completed. The impact of this proposal is tied into where the government lands on the length of the reference period (see above).

Under the ERA 2025, a limited term is classed as reasonable if the worker is needed:

(1) for a specific task;

(2) until a particular event occurs; or

(3) for another ‘temporary need’ as defined in regulations.

Also, where an employer is under a duty to make a guaranteed hours offer to a qualifying worker, that guaranteed hours offer may take the form of a limited-term contract if a limited-term contract is reasonable under the same definition.

The consultation asks for examples of temporary needs that are not related to a specific task or event.  In particular, the government is seeking views on whether (1) and (2) are sufficient to cover the needs of sectors which engage workers to cover seasonal demand.

How to calculate the guaranteed hours offer

The government's intention is that the guaranteed hours offer will reflect the number of hours a qualifying worker worked during a reference period. The consultation asks which method would best achieve this: whether guaranteed hours should be calculated using mean or median average hours worked during a reference period.  A median average is less influenced by outlier weeks  - particularly busy weeks where the workers works much more hours than in the other weeks.

The consultation also asks whether employers should have flexibility to determine how hours will be allocated (weekly, monthly or otherwise) or whether this should be set in regulations.

Exemptions from duty to make guaranteed hours offers and exclusions from the right to guaranteed hours

The consultation seeks views on whether any worker groups should be excluded from the right to guaranteed hours, for example, workers who have another contract with the same employer exceeding the threshold.  It also asks whether employers should be exempted in certain circumstances and if so which specific circumstances (it explains that the circumstances would have to be exceptional such as exempting employers whose premises are flooded and are unable to trade whilst their business is closed).

Reasonable notice of shifts and payment for shifts cancelled, moved or curtailed at short notice

The ERA introduces new rights for zero and eligible low-hours workers to receive reasonable notice of shifts and compensation for short notice shift cancellations or changes. These measures are particularly relevant for employers operating in sectors reliant on variable or unpredictable working patterns, such as retail, hospitality, and care. 

• Eligibility - the government proposes that the rights to reasonable notice and payment for shifts cancelled, curtailed, or moved at short notice should only apply to people with a certain number of hours guaranteed in their contract. This ‘hours threshold’ could be the same as the guaranteed hours measure discussed above although it wouldn't have to be – the consultation give options of between 8 and 48 hours a week.
• What is reasonable notice of shifts? - The consultation asks how much notice should be presumed reasonable. For directly engaged workers, options are one week; two weeks; three weeks; four weeks; and ‘other’.

The government is also seeking views on the circumstances in which it might be acceptable to offer shifts with less notice, and in which circumstances employers should provide more notice.  For example, it might be that more notice should be expected when a worker is contractually obliged to work any shifts that are offered to them than when a worker is free to turn down any shift that is offered. It might also be that less notice should be expected if an employer is seeking cover for another worker who has unexpectedly called in sick or is unable to work at the last minute for some other reason.

• Payment for short notice - The government’s intention is that the amount the worker receives as a short notice payment should relate to how much they would have earned had they worked the shift as expected. The consultation asks for views on whether the payment should be calculated as a percentage of what the worker would have actually earned from working the relevant hours or a percentage of what the worker would have earned from working the relevant hours at the applicable National Minimum Wage rate and what that percentage should be (ranging from 10-80%).
• Enforcement - The ERA places responsibility for enforcement of the zero hours measures with the employment tribunal system, however, the government also intends for the Fair Work Agency (FWA) to enforce aspects of these rights to help increase compliance. The government proposes that the FWA could issue notices of underpayment, requiring employers to pay arrears owed to workers, and pay an additional penalty to the government. The government's preferred payment is 50% of the arrears owed, with a minimum penalty of £100 and a maximum penalty of £5,000 per worker (although the penalty could be reduced by 50% if paid within 14 days).

Agency workers

Following consultation in late 2024, the government decided to extend the protections in relation to zero hours and low-hours contracts to agency workers. Under the ERA, the measures apply differently to agency workers compared to directly engaged workers to reflect the nature of agency work and the three-way relationship between agency worker, agency and hirer.  In the consultation document respondents are given the opportunity to answer similar questions to those outlined above in relation to agency workers.

What this means for employers

We now have some idea of the government's thinking on key outstanding issues on the zero and low-hours reforms in the ERA. These provisions are lengthy and complex, leaving much to the yet to be published regulations. There is still potential for employers to have some influence over how the policy is implemented in practice though, based on our dealings with those responsible for the ERA, the initial 12 week reference period is probably set in stone.

Although Unions are calling for the low-hours threshold to be more than 20 hours to bring more employees into scope, employers will want to reduce that number as low as possible. Classing a 20-hour work week as a low-hour contract could force some employers to repeatedly offer guaranteed hours contracts to hundreds of workers.

On the reference period, employers will be concerned that the government’s preference is for the initial reference to be 12 weeks long.  Such a short reference period could threaten the ability to hire seasonal workers.  In  addition, there is a concern that such a short reference period could skew what would be considered a person's standard working pattern.  In most cases, a longer reference period would ensure a fairer and more accurate way of assessing the working patterns.

In relation to the provisions around notice of shifts and shift changes, the government have not stated their preference, however there is an option of four weeks which would much reduce the flexibility needed for shift work. The many employers we know who plan their shifts one or two weeks in advance should make this point themselves, or through their trade bodies, in response to the consultation to ensure the government understands the practical challenges of a longer notice period.

Employers will wish to retain as much flexibility as possible.  If the regulations remain difficult to manage it will result in fewer flexible roles - employers are likely to consider relying more on self-employed contractors and short fixed term contracts.

How can you respond to the consultation?

You can respond directly on line or by email: Respond online: Make Work Pay: ending one-sided flexibility - reforms of zero hours and similar contracts (GOV.UK) https://ditresearch.eu.qualtrics.com/jfe/form/SV_aVtNI2h3zEpVjpQ

Email to: zerohours.consultation@businessandtrade.gov.uk

We also intend to respond to the consultation. Clients who have comments that they would like to feed in to our responses should speak to Joanne Bell, Sara Meyer, or their usual DAC Beachcroft contact.