HR Solutions, New Deal for Working People: Changes to Zero Hours Contracts
Here is the Hot Topic for June 2025 and an accompanying webinar will follow, which will be hosted on 12 June 2025.
Introduction
The UK employment landscape is undergoing significant changes particularly in respect of zero-hour contracts and flexible working. In this month’s Hot Topic, we consider how the Employment Rights Bill will impact employers in terms of their ability to recruit and retain, and how the business can remain agile and flexible.
A new era for flexible working?
Currently, employees, workers and agency workers on zero-hour contracts have no legal right to be given a guaranteed number of hours reflecting their actual hours and pattern of work.
This type of employment arrangement is extremely beneficial for those employers that operate in sectors that are seasonal, or where business is highly variable and unpredictable. The ability to engage someone without being obligated to provide work during certain periods enables the business to operate flexibly, become agile and responsible to customer needs and can be a cost-effective recruitment solution through reduced overheads.
Even though there are many benefits to the employer, this form of employment arrangement can be exploited, as the Government have set out in their ‘Zero hours contracts’ factsheet.
The impetus for this reform is to address "one-sided flexibility" that has come about because of the lack in proper safeguards resulting in workers bearing the financial risk and the lack in job security through the unpredictability of work.
The Employment Rights Bill will become landmark legislation, especially in respect of how it is set to reform the law around the use of zero hour contracts, under the Bill, it proposes:
Eligible workers to be offered a guaranteed number of hours, reflecting the hours they regularly work over a reference (which could be a 12-week period, although this is yet to be confirmed).
Employers will be required to provider workers with a reasonable notice of shifts
Employers to make payments to workers if they cancel, move or curtail a shift at short notice
That the application of zero-hour contract measures to apply to agency workers
Both the employment agency and the end hirer will be responsible for providing the agency worker with reasonable notice of shifts
The Employment Tribunal will be able to apportion liability based on the responsibility of each party in each case
An employment agency will have the responsibility to pay any short notice cancellation or curtailed payments; however, they will be allowed to re-coup this from the hirer where they have arrangements with the hirer covering this
Where there is a genuine temporary work need, there will be an exception clause that allows an employer to lawfully not offer guaranteed hours
It may be possible to contract out of the requirement to offer guaranteed hours, so long as it is done so in the form of a collective agreement and that it is then replaced with something else that is contractual.
Before any of the reforms to zero-hour contracts can come into force, further regulations will be required to provide how the law will apply in practice. From a report published by the Business and Trade Committee on 3 March 2025, called “Make Work Pay: Employment Rights Bill”, it sets out recommendations put to the Government for how this reform area should be managed, which includes:
Defining how many weeks the initial and subsequent reference periods should be when calculating what a guaranteed number of hours should be.
Provide clarity on what is meant by “reasonable notice of a shift” that the employer requires (or requests) the worker to work.
Provide definitions for what is meant by “moved”, “short notice” in respect of cancelled, moved or curtailed shifts.
Provide a definition of what is meant by “low hours”.
Defining "Qualifying Worker" and "Low-Hours Contracts" by explaining the criteria for workers to be eligible for these new rights.
Clarify that zero-hour contracts are not being banned, but rather reformed to ensure a baseline of security.
Impact on employers
So how will these reforms impact employers? We believe that this reform could impact employers in a variety of ways:
Increased Administrative Burden: Employers will need to regularly review the working patterns of those workers employed on a zero-hour arrangement to identify those who qualify for a guaranteed hours offer. This will involve tracking hours more meticulously.
Loss of Flexibility: Employers could lose the ability to completely scale down their hours during quiet periods, risking a more fixed wage bill, even when demand is low.
Potential for overstaffing: For industries such as those mentioned, with highly seasonal or unpredictable demand, employers might be obligated to provide hours even when there isn't enough work, potentially leading to overstaffing and increased costs.
Risk of redundancies: Zero-hour contracts with a guaranteed number of hours and then the business need reduces significantly, employers might face the prospect of making redundancies, which comes with its own legal and financial implications.
Need for workforce planning: Businesses will need to think more strategically about their long-term staffing needs and how they utilise zero-hour contracts, perhaps shifting towards more fixed-term or annualised hours contracts where appropriate.
Agency workers: The reforms are also extending to agency workers, meaning hirers (end clients) and agencies will have obligations to offer guaranteed hours, which could complicate the current agency model.
Improved scheduling practices: Businesses will need to implement more robust and forward-looking scheduling systems to ensure shifts are communicated well in advance.
Reduced last-minute changes: The ability to make very last-minute changes to shifts will be curtailed.
Increased costs: This is a direct financial impact. Employers will incur costs for shifts that don't happen or are shortened due to their operational changes.
Incentive for better planning: This measure strongly incentivises employers to plan meticulously and avoid last-minute changes to their schedules, as there will be a financial penalty for doing so.
Uncertainty on "Short Notice" and Compensation: Details on what constitutes "short notice" and how compensation will be calculated are still pending and will be set out in regulations. This lack of clarity in the interim creates some uncertainty for businesses and their ability to plan and budget.
Recruitment and Retention
In considering recruitment, the scale of this reform is significant, however from an employee retention perspective, it can bring many positives, as we summarise below.
The reforms to zero-hour contracts signal a fundamental shift away from the traditional model of maximum staffing flexibility. The obligation to offer guaranteed hours to workers who consistently demonstrate a regular working pattern will necessitate a more cautious approach to recruitment, potentially leading to increased reliance on precise workforce planning and forecasting rather than a "hire-and-hope" strategy. Consequently, we could see an increase in initial recruitment costs for businesses, as they shift towards more formal contracts and away from easily accessible casual staff, posing challenges for sectors with highly fluctuating or seasonal demand that have historically relied on zero-hour arrangements, as previously indicated.
While this shift may present an initial administrative burden in tracking hours and managing compliance, it also offers tangible long-term benefits for retention. Employers who adapt effectively by providing greater predictability and security to their workforce are likely to experience improved employee engagement, higher morale, and ultimately, reduced staff turnover. This can translate into significant savings on recruitment and training costs in the long run, alongside a more stable, productive, and loyal workforce, enhancing the employer's reputation and reducing legal risks associated with non-compliance.
Navigating the changes: strategies for business agility and compliance
Although Regulations are required to provide businesses with how the rules must be applied in practical terms, there are strategies that employers can deploy now in readiness for the changes ahead:
Regularly review the working patterns of those workers employed on a zero-hour arrangement to identify those who qualify for a guaranteed hours offer. This will help you in forecasting potential costs as we get nearer to implementation and therefore allow the business to take proactive steps in mitigating the impact of the change.
It will be important to carry out scenario planning to plan and prepare for the potential direct financial impact when costs will apply where there have been shifts cancelled, or rescheduled short notice.
Thinking more strategically about the business’ long-term staffing needs and how to utilise zero-hour contracts will be crucial. Consideration may be given to alternative employment arrangements such as using more fixed-term or annualised hours contracts where appropriate.
Review existing systems and operational practices to ensure they will remain fit for purpose once the law changes. This is important because it is likely that more robust and forward-looking scheduling systems will be essential to ensure shifts are communicated well in advance.
We strongly advise employers to prepare for and plan meticulously for all the employment reforms as there will be financial penalties and other forms of enforcement where there is failure to comply. Planning can begin with assessing the impact each reform will have on the business – on its workforce, marketing and sales strategy, finances and budgets, IT systems and operational practices. We will soon be launching our suite of impact assessments to help employers in understanding the impact of each of the reforms on their business, so keep a look out for further news as we launch these.
Timescales for change
As it stands, the Employment Rights Bill (latest version here) is currently being debated and amended in the House of Lords, having already been debated and amended in the House of Commons.
It is currently at the Committee Stage, after which a report will be published, and a further reading of the Bill will take place before it then returns to the House of Commons for consideration of the Lord’s amendments and then given to the King for being given Royal Assent (i.e. to be passed as an Act of Law).
We have previously indicated that there was the potential for the Bill to be given Royal Assent around July 2025. However, it is taking longer than expected to be debated in the House of Lords. In our reading of the latest legal news and insights, the current legal assumption is that it now not be passed as law until after Parliament recess for the Summer. It is more realistic to expect the Bill is therefore passed around September time.
Of course, this is only an assessment, there has been no confirmation from the Government. We continue to monitor the news and follow leading legal commentators to remain up to date with how it is progressing.
In respect of the reforms themselves, because of the extent of these, they will be implemented in phases. Some would be ready to be introduced, whilst others will require new Regulations or Codes of Practice drafting, which means that ultimately, it could take a few years for all the reforms to be introduced.
The specific reform regarding the requirement to issue guaranteed hours for zero-hour workers, this is an extremely complicated reform and so is not expected to come in for some time. It may not even be until 2027 at the earliest. This again is our assessment, and we continue to monitor how the Bill progresses and the amendments that are being put forward.
Next steps
For this reform to take effect, there needs to be careful drafting of secondary legislation. This will then set out the detail behind the implementation of the changes. There could also be new guidance, or an Acas Code of Practice developed to help employers in managing the new rights.
We also know that following a public consultation, several important areas of clarification is needed to enable employers to effectively implement the law, including:
A definition of how many weeks a reference period is for calculating guaranteed hours
Clarify what is meant by “reasonable notice of a shift”
Define what is meant by “moved”, “short notice” in respect of cancelled, moved or curtailed shifts
Define what is meant by “low hours”
Defining "Qualifying Worker" and "Low-Hours Contracts"
Clarification that zero-hour contracts are not being banned but reformed to give a baseline of security.
Further Information
You will find lots of helpful information on the Knowledge Base regarding zero hour contracts, which includes: