What is a zero-hours contract? A guide for employers

Zero-hours contracts have some negative connotations, having been viewed as exploitative. However, some argue that they offer valuable flexibility to both workers and employers.

Running a company in 2025 is a stressful endeavour, even with the help of the best HR and payroll software, so it’s understandable why employers consider zero-hours contracts. Just remember, it’s your responsibility as the employer to make sure you’re not taking advantage of your staff and that you both clearly understand the arrangement.

Of course, there are plenty of pitfalls to avoid, so we’ll highlight all you need to know. We’ll take you through the pros and cons of zero-hours contracts, and whether they’re a viable option for your business.

What is a zero-hours contract?

Also known as casual contracts, zero-hours contracts are a specific type of employment contract. They are used for on-call work or “piece work”, meaning a worker on a zero-hours contract is on call for work when you require them.

Basically, it means the employer is not required to give a worker on a zero-hours contract a set amount of work. It’s a two-way street, though, as a zero-hours contract worker isn’t always obliged to accept the work given to them.

Perception of zero-hours contracts has been largely negative in the media because the hours can be unpredictable, they can leave workers in a financially vulnerable position, and there’s an overall lack of job security.

However, they can also be attractive to workers because:

• They offer a lot of flexibility, especially for workers who need to care for families or students looking for work around full-time education.
• It gives workers the freedom to have multiple jobs simultaneously.
• They provide work experience, as a zero-hours contract can act as an extended, practical trial period.

What are the employer’s responsibilities?

This year saw the introduction of the Employment Rights Bill, which aims to increase protections for casual contract workers. Media headlines have discussed a “ban” on zero-hours contracts. But that’s not entirely true.

Instead, the new legislation aims to end exploitative practices rather than ban the contracts entirely. That means, new protections will be introduced for zero-hours workers over the next two years.

One of the key changes employers need to know is that after a 12-week ‘reference’ period, employees gain the right to request a fixed-term contract. Workers will also gain protections around short-notice cancellations, with workers entitled to compensation for reduced or cancelled shifts.

A worker on a zero-hours contract is still entitled to statutory annual leave and the National Minimum Wage. Employers are also still fully responsible for the health and safety of workers, regardless of contract type.

What are the workers’ rights under a zero-hours contract?

A worker’s rights are determined by their employment status, which is either as an employee or a worker, and not by having a zero-hours contract. Knowing the difference is critical, as incorrectly classifying your zero-hours staff as a worker instead of an employee can have legal consequences.

Determining the classification can be tricky, as it depends on the written terms of the contract and how those terms are applied in practice.

For zero-hours contract workers, this will mean they are entitled to:

• A written statement of employment, to be given to the worker either on or before the start date
• National minimum wage
• Paid annual leave (statutory minimum holiday entitlement of 5.6 weeks)
• Rest breaks
• Pension auto-enrolment (depending on qualifying conditions)
• Statutory sick pay (depending on whether specific eligibility has been met)
• Payslips
• Protection from unlawful discrimination
• Protection for whistleblowing

For employees, staff are guaranteed the same rights as above, but additionally, they are also entitled to:

• Family-related leave
• Protection from unfair dismissal
• Statutory redundancy pay

As of 2015, there has been an exclusivity ban on zero-hours contracts. This means that an employer cannot include a clause in their zero-hours contract banning staff from seeking or accepting work from another employer.

As part of this, zero-hours contract workers have protections against discrimination for working for other employers. It’s illegal for workers to face unfair treatment if they choose to work for a different employer.

Zero-hours workers are fully entitled to engage in work elsewhere; you can’t prevent them from undertaking other work.

Are zero-hours contracts right for my business?

Generally speaking, zero-hours contracts are favoured by businesses that have seasonal requirements or frequently need staff on short notice. This allows employers to save on overheads, as you’ll only be paying for the hours you need the workers for.

Businesses that zero-hours contracts may work for

Businesses that would most benefit from zero-hours contracts are those that see a large and predictable fluctuation in staff, especially those that see a rise and fall in demand for labour during quieter trading periods.

Here are some examples below of businesses that would most benefit from zero-hours contracts:

• Construction
• Deliveries
• Warehouse work
• Retail
• Hospitality
• Catering
• Care work
• Education

Businesses that zero-hours contracts may not work for

Zero-hours contracts are largely unsuitable for businesses that rely on continuity, stability, and highly trained skillsets. Using zero-hours contracts in these types of environments could cause great harm to the company culture and infrastructure.

Some examples of these types of businesses include:

• Professional services like law firms, accountancy firms, engineering firms, or consultancies
• Specialist manufacturers
• Tech and software industries
• Crucial public sector and civil service roles

What should you include in your zero-hours contract?

If you decide to implement a zero-hours contract as part of your business, you’ll need to ensure it’s drafted correctly and precisely. Crucially, you need to include that you’re under no obligation to provide work to the worker.

Employment status must be clearly defined in the terms of the contract. If you intend to engage them as a worker, rather than an employee, then the contract must state that there is no obligation to accept the work you offer and that it is not the intention of either party to enter into an employment contract.

You should also state that there will be no continuing employment relationship between the periods of work. You need to include the specifics of how the work will be offered, as well as the notice period, benefits, and relevant pay. If the benefits differ from those of employees on guaranteed hours, you need to make this extremely clear in the contract.

You should also clearly state in the contract that annual leave entitlement is strictly accrued based on hours actually worked. Also, remember that it’s illegal to include an exclusivity clause.

Summary

You should think carefully before implementing a zero-hours contract for your business. There are alternative options that might be more suitable, like part-time employment, fixed-term contracts, offering overtime, or using a staffing agency. 

Ensure that you are very clear in your advertisement and during the interview that you’re offering a zero-hours contract, not fixed-term or full-term employment. As an employer, you should also have a clear and constructive conversation with your prospective worker as to whether a zero-hours contract is right for them. 

You should also regularly review the nature of your relationship to determine if it still fits the criteria of a zero-hours contract. Avoid cancelling shifts at the last minute and give your workers as much notice as possible.