By Kirsty Burgess, Co-Founder and Director, citrusHR

Businesses as diverse as Sports Direct and Buckingham Palace employ more than a million people across the UK with no minimum contracted hours of work. The zero-hours contract has come in for a lot of attention recently – much of it negative – but what’s the true picture for small businesses?

The zero-hours contract is a highly flexible casual work agreement that allows an employer to offer a worker as little or as much work as they wish, and the workers to take as little or as much as they like. That’s the theory, anyway.

The number of zero-hours contracts has grown significantly, particularly during the recession, and there are now thought to be about 1.4 million UK workers on them. Although the number of people on the contracts has increased, the average hours worked per contract has shrunk from about 30 to less than 25 hours per week.

So the real change may be that the country’s casual workload is being spread among an increasingly larger group of workers.

Are zero-hours contracts good for employers?

Flexibility. They allow businesses to seamlessly adapt to changes in demand, to increase the range of services they offer and to quickly expand (and shrink) their geographical reach.

Growth. Businesses can grow their workforce very quickly without committing to permanent new staff. This allows small organisations to experiment in new market areas with no wages to pay if things don’t work out, but enjoy a ready pool of familiar ‘temp-to-perm’ staff if they do.

Affordability and simplicity. If the worker is not working, they cost the employer nothing. The requirements for employers vary depending on whether their workers are classed as ‘employees’ or ‘workers’, and this depends on the precise nature of the relationship. If your workers are not classified as employees, your financial relationship with them can be much simpler.

Figures from the Close Brothers Business Barometer, a quarterly poll of small enterprise owners and senior management, shows over a quarter (28%) of UK firms are in favour of zero-hours contracts. Of these, 60% believe the contracts would allow them to respond quickly to fluctuating demand for their services, while almost a third (31%) believe that it would grant their employees greater flexibility in the workplace.

Are zero-hours contracts good for workers?

Choice. Workers have a greater say over when, where and how much they work. Those who are happy with existing zero-hours contracts say they appreciate the flexibility it gives them over their hours of work, which they can fit around other commitments.

Easy entry. The contracts provide a useful way onto the workforce for students seeking work experience or casual income, and for others looking for a route to permanent contracts.

Retirement work. They allow retired or partially retired people to ‘keep their hand in’, generate an income and pursue a wider range of interests.

A CIPD survey recently found that 47% of individuals on zero-hours contracts were 'very satisfied' or 'satisfied' with having no guaranteed hours, compared to 27% being 'very dissatisfied' or 'dissatisfied'. Of those respondents who were happy with a zero-hours contract, the key reason was the flexibility over their hours of work. 72% of all respondents believed they had 'a lot' or 'some' choice over the number of hours they worked.

Are zero-hours contracts bad for workers?

Unpredictability. Zero-hours contracts do not usually allow for financial planning. For those with dependents especially, zero-hours contracts can create a state of permanent uncertainty.

Exploitation. A government review of the contracts found that some employers caught workers in a vice, using exclusivity clauses to prevent them from working elsewhere, even though the employer had not guaranteed them any work.

Manipulation. Some employers have been known to penalise workers who do not take up the work they are offered, even having given little or no prior notice. The shortage of notice and predictability also plays havoc with benefits entitlements and payments.

Rights. Most zero-hours contractors will be classified as ‘workers’ rather than ‘employees’. As such, they are not entitled to protection from unfair dismissal, the statutory minimum notice of intention to terminate employment, redundancy pay, the right to request flexible working, time off for ante-natal care, unpaid time off to care for dependents or protection in the event of a buyout. But they are entitled to rest breaks, the National Minimum Wage, protection from discrimination, whistleblowing protection and health and safety protection.

A note of caution

If employees work for long enough in a continuous stretch, they may be entitled to full employee status. And even if a contract is stated to be zero-hours, an employment tribunal or court may decide that there is in fact an ‘employment relationship’ if it is found that there is little control or flexibility on the part of the worker.

What is the government planning to change?

Exclusivity. The government has recently included a ban on the use of exclusivity clauses in existing and new-zero hours contracts in the Small Business, Enterprise and Employment Bill. The Bill is currently making its way through Parliament and, if it becomes law, zero-hours workers will no longer be prevented from accepting employment with another employer.

Code of conduct. A best practice code of conduct will be introduced this year on the fair use of zero-hours contracts.

Kirsty Burgess is co-founder and Director of citrusHR, the UK’s most comprehensive employment support service for new and smaller businesses.