Updated for 2014.
With the introduction of the Agency Workers Regulations in 2010, many Companies are believed to be using far more zero-hour contract workers now, instead of Agency temps. At Workline we get a lot of queries from people employed on zero-hour contracts, so here we look at these types of contracts in more detail.
There are basically three different types of working individuals:
- An Employee
- A Worker (someone who works on a e.g. casual basis or is an agency temp)
- Someone who is self-employed (i.e. a freelancer or contractor – for more information on determining your legal status if you are a contractor, see our IR35 Guide).
It is important for the individual and the employer to establish their status, as:
- Employees generally have more employment rights than Workers or those who are Self-Employed (see our Guide to your Employment Rights here)
- There is a difference in National Insurance contributions, tax and benefits between Employees/Workers and those who are Self-Employed.
(To read about Internships/Work Experience see our Interns article here. For more information on unpaid Volunteers and Voluntary Workers see our new article here)
If you are employed on a Zero-Hour contract
You will generally be a Worker if employed on a zero-hour contract (some zero-hours contracts can be full employee contracts, although this is more unusual). A Worker is a broader category than an ‘employee’, introduced by European Union legislation (although there is no EU definition). A worker is anyone who works for an employer under a contract of employment (but this may be a written contract or not and the contract may not come directly from the Employer) and performs the work personally (which can include some freelancers).
Workers are usually:
- Agency workers (‘temps’) – the Agency who finds you work pays your wages (or, if you are a Contractor, you may get work through an Agency but an Umbrella company pays your wages), and the Company who hires you pays a fee to the Agency for your work.
- Short-term Casual Workers hired directly by the Employer (often with a written contract and usually paid via PAYE, with tax and national insurance contributions deducted) – Casual Workers are not usually part of the permanent workforce but supply their services on an irregular or flexible basis or have a ‘minimum guaranteed hours’ or ‘zero-hour’ contract.
- Some Freelancers and Contractors - there are occasions when those who are self-employed for tax purposes may be classified as ‘workers’ for employment rights purposes – including when a self-employed person is personally providing a service under a contract for another party to a client (i.e. not providing services directly to the client or business). You cannot be a ‘worker’ if you are self-employed and the contract between yourself and your client includes a genuine right entitling you to ‘substitute’ someone else to do the work.
What are zero-hour contracts?
- They are contracts that give businesses a high degree of flexibility as they give no guarantee to the individual worker of a minimum number of working hours, so the individual worker can be used as and when required, and is only paid for the hours they work.
- The worker will not obtain ‘employee’ status generally, and will not build up any continuity of service (if the contract is appropriately written and accurately reflects the relationship between the employer and the worker).
- The worker should not be required to undertake any work that is offered and there should be no detriment to them if they decline work or work for another company. Otherwise this would indicate they have employee status, it is called ‘mutuality of obligation . ‘Mutuality of obligation’ is a key requirement for a contract of employment – where the employer is obliged to offer and pay for work and the employee is obliged to accept and perform the work. Exclusivity Clauses (where a worker is not ‘allowed’ to work for another Employer) should not exist and on the 26th June 2014 the Government announced they would ban these clauses. More details will follow as we know more!
- For a zero-hour contract to be legitimate there must not be any mutuality of obligation between assignments given to and accepted by the worker (and this means that holiday entitlement should not accrue between assignments, only during the period of an assignment). If you are an Employer and need help calculating your zero-hours workers’ holiday entitlement, as there are many issues here to keep abreast of, please talk to Lesley Furber at The HR Kiosk, as she has experience of providing this help.
- See our June update about zero-hours contracts here and the Government review of these types of contracts.
- In Mid December 2013 Vince Cable announced the start of a consultation on the use and nature of zero-hours contracts, looking for views from various stakeholders, up to until March 2014. BIS has highlighted concerns at the use of exclusivity clauses preventing staff from working with multiple employers and the apparent lack of transparency of the contracts from both the employers and employees perspective.
- In April 2014, the Labour leader Ed Milliband said that workers on zero-hours contracts would have the right to request a contract with a minimum amount of work after 12 months with the employer. He also promised workers on zero-hours contract would be free to work for other employers and have the right to compensation if shifts were cancelled at short notice, if Labour come into power after the General Election in 2015.
- On 26th June 2014 Vince Cable announced legislation would be introduced to ban ‘Exclusivity Clauses’ (which stop workers working for another Employer). You can read about this here and the consultation that started at the end of August 2014 here.
Does a temporary/casual worker ever become an employee?
Unfortunately, there is no simple answer to this question.
If an employer engages people on an ad-hoc basis to help out during staff shortages or at busy times of the year, or when an emergency arises, knowing full well that the individual may or may not be available when the Employer needs them, then they will not be employees.
But, if the Employer regularises the arrangement with those workers and undertakes to provide them with work on specified days and at specified times of the week, on the understanding (accepted by the individual) that they will present themselves for work on those days and at those times, the chances are that the relationship between the employer and the workers will change to that of employer and employee.
The other factors that need to be taken into account in determining employee status include whether an individual is expected to carry out the work personally and whether the Employer has had sufficient control over the way the work was done.
As always, it will be for an employment tribunal to determine the true nature of the contractual relationship between an employer and a worker, if an agreement cannot be made between the Employer and Worker.
An important Tribunal Case at the end of 2012 found that six individuals employed on ‘zero hours contracts’ were actually employees.
In Pulse Healthcare Limited V Care Watch Care Services Limited plus others, the 6 individuals were engaged by Carewatch to provide 24 hour care to a severely disabled individual. Pulse took over the service contract from Carewatch and the individuals claimed they were employees and that their employment transferred under TUPE. Pulse argued they were not employees and did not have sufficient continuity of employment to claim unfair dismissal but the Employment Tribunal disagreed. The ET said there was sufficient mutuality of obligation for the claimants to be employed (i.e. they were required to personally perform the work, they were obliged to do the work and Carewatch undertook to offer the work). The ET also disagreed that the claimants were engaged on a succession of individual contracts as opposed to an ‘umbrella’ contract and therefore did not have sufficient continuity of service – the ET felt they were employed under a ‘global’ contract to provide a critical care package.
If it is established that the employment relationship has changed to that of an employer and employee then the start of the individuals continuous period of employment will also need to be established, in order to determine what statutory (and perhaps contractual) rights the individual has.
In August 2013 a legal challenge was taking out against SportsDirect for their use of Zero-Hours contracts – see the details here.
If you are an Employer and need ongoing professional help with any staff/freelance issues, or a Contractor/Freelancer/Employee with a complicated employment related problem, then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.
Photo by Mao Lini