How To Employ An Individual On A Casual Or Zero Hour Contract?

This article will explore when a casual and zero hour contract might be appropriate.

It will also look at the flexibility of these contracts and any potential limitations.

What Is A Casual Or Zero Hour Contract?

Casual or zero hours contracts are commonly used for seasonal or unpredictable work where an employer does not wish to guarantee a fixed number of hours.

Common examples where you would use such a casual/zero hours contract would be when engaging students during holidays in retail or hospitality sector to deal with seasonal and fluctuating demand.

Individuals retained on a casual or zero hours basis can be engaged as either a “worker” or as an “employee” both of which are two significantly different types of “employment status”.

What is the difference between a worker and an employee?

In general terms to be classed as an employee the 3 factors detailed below should apply:

• Personal service – the individual must provide services personally and not be able to send a substitute;
• Mutuality of obligation – the employer is obliged to provide work and the individual is obliged to do that work;
• Control – the employer must exercise control in the way an individual undertakes any work.

If none of the above factors exist, then it is more than likely that an individual will be deemed to be a “worker”.

As such one of the key differences is that a casual worker is under no obligation to accept work given to them whereas a zero-hour employee is required to accept any such work given to them.

Other differences are that employees are entitled to all statutory employment rights such as the right to claim unfair dismissal.

In contrast a worker cannot claim unfair dismissal or a statutory redundancy payment and only has some statutory rights such as the right to national minimum wage, working hours and annual leave.

The table below sets out the main different statutory rights applicable to each category.

Exclusivity Clauses

An exclusivity clause is a term that prohibits an individual from undertaking any work for another employer.

Such a clause is now banned from any type of casual/zero-hour contract.

As the employer is not guaranteeing any hours of work, it would not be reasonable for the employer to restrict the individual’s outside interests.

Holiday

Holiday entitlement 

Workers engaged on casual and zero hours contracts are entitled to the statutory minimum holiday entitlement like any other worker, which is 5.6 weeks per year for those who work full-time.

However, calculating casual and zero hours workers’ holiday entitlement can be difficult because their hours of work are not known in advance and there is no set process for how their holiday should be calculated.

It is a widespread practice for employers to calculate casual workers’ holiday entitlement on the basis of 12.07% of the hours they work.

However, this can cause issues as it does not always correspond with the statutory minimum holiday entitlement, so you must ensure that when using this calculation, it does not result in workers receiving less holiday than the statutory minimum.

A more accurate way to calculate holiday for casual and zero hours workers would be to calculate their average weekly hours based on a reference period of 52 weeks.

The gov.uk website has a holiday entitlement calculator which is useful for calculating the correct holiday entitlement for workers with irregular hours.

Taking holiday 

If the nature of the casual or zero hours worker’s work is a series of separate short assignments, you can pay them in lieu of the holiday they have accrued but not taken at the end of each assignment, to prevent them from taking holiday during the assignment.

Doing this is not paying rolled-up holiday pay as a general rule, which is not permitted.

However, if the casual or zero hours worker is continuously working for a longer length of time, they should be able to request holiday under the company procedure like any other employee.

Holiday pay 

The holiday pay of workers with irregular hours, which includes casual and zero hours workers, should be calculated according to their average weekly pay in a reference period of 52 weeks.

The reference period was increased to 52 weeks from 12 weeks in April 2020 to make it fairer for workers with irregular work patterns.

The 52-week reference period should only include weeks when the worker has been paid for work, so weeks when the worker has not worked should be discounted.

The reference period can take into account earlier data, but it should not back-date over 104 weeks and it can be shorter than 52 weeks where not enough data is available.

Sick Pay​

It is a requirement of statutory sick pay (SSP) to work under an employment contract and meet a minimum level of average weekly earnings, which is currently £120.

Zero hours employees can qualify for SSP, but this is dependent on whether they meet the weekly earning threshold.

To claim SSP for the entire duration of sickness absence, a worker must have three continuous months’ service with their employer.

Therefore, many casual workers will only receive SSP for the duration of any assignments that they have accepted and not the full extent of their sickness.

Casual and zero hours contracts in practice​

Casual and zero hours contracts are very useful in industries where the demand for work fluctuates, such as in retail and health and social work.

These types of contract bring benefits such as:

• Increased flexibility and no obligation to provide work for staff
• An affordable alternative to the use of agencies
• Suitability for certain types of individuals, such as students and those with caring responsibilities

However, there are inevitably some risks and potential issues that can arise:

• The workers engaged may be less productive and dedicated to the business as they are often not integrated with the rest of the workforce
• The employment status of such workers can be ambiguous, making administrative tasks such as calculating holiday and sick pay difficult.

Therefore, it is important that you carefully consider the suitability of casual and zero hours contracts to your business before using them.

You should not be mistaken into thinking that you do not owe casual and zero hours workers any employment protections.

It is best practice to set out all the terms of the arrangement in writing, especially whether their status is “worker” or “employee” so that there is no ambiguity, which will prevent future issues.