Charlie Elphicke is the Member of Parliament for Dover and Deal.
Labour refused to reform zero-hours contracts when they were in Government. They said that as business was opposed they wouldn’t do anything. They were wrong. Representing the port town of Dover where there is a lot of casual work, the case for reforming zero-hours contracts is compelling. But it must be a wider, more thought-through reform than Labour have been suggesting. Reform must enable the flexibility many employees seek, yet protect people from being taken advantage of. It is to strike this balance that the Coalition Government is currently carrying out a review.
Reform needs to allow people to take on work elsewhere if too few hours are offered. People who work more than 15 hours a week in practice should be treated as employed – following the tax treatment for employment. Many of the recommendations for best practice by the Chartered Institute for Personnel and Development (CIPD) should be adopted. Where people are self employed it’s also worth looking at enabling them to opt into a PAYE system.
Why tackle zero-hours contracts?
The last Labour Government reviewed zero-hours contracts. They published a White Paper saying that businesses opposed reform. So they decided to do nothing about it, saying “The Government wishes to retain the flexibility these contracts offer business and believes that the National Minimum Wage and Working Time Directive will provide important basic protections against some of the potential abuses”. That was heartless and wrong.
Just as with payday lenders there are those who will say this is all just a matter for employers and employees. Yet an important part of Conservative tradition is that we believe in protecting people. We support enterprise, opportunity, hard work, profit and success – yet it’s not right to allow people to be taken advantage of.
It is therefore right that zero-hours contracts are reformed. A reform that prevents advantage being taken while retaining the flexibility many employees need.
The tension with zero-hours contracts
Zero-hours contracts are designed to give both employer and employee a level of flexibility which neither could find in a part-time contract. In an ideal situation, the employee would agree to one where they want infrequent work. This is often the case with students or retirees, for example. On the other side of the coin, employers will typically want to use them when they don’t know how many hours they need their staff to work from week to week, such as a seasonal tourist attraction.
Research undertaken by the CIPD suggests that people on zero-hours contracts are around twice as likely to be satisfied with the number of hours they work than dissatisfied. 65 per cent of those on zero-hours contracts are happy with their work-life balance, which stands in contrast to those on regular contracts which was only around 58 per cent.
So zero-hours contracts can work and it would be a mistake to ban them entirely. But we must also recognise that there are problems with the way things currently work:
- Individuals having to work exclusively for companies even when no hours are given.
- A lack of clear understanding as to how the employer-employee relationship works from the viewpoint of the worker, particularly when employees are afraid to turn down work for fear of reprisals by their employer.
- Poor practice on the part of employers, who don’t give notice of the cancellation of work shifts, or in some cases don’t give pay parity between workers on zero-hours contracts and those on full-time contracts.
How many are on these contracts?
The biggest problem with addressing zero-hours contracts is that it is hard to give a number for how many people are even on them. When the Government launched their consultation into this issue, there were three different estimates of the total number of individuals on zero-hours contracts:
- ONS: 583,000, or 1.9 per cent of workforce (based on Labour Force Survey)
- CIPD: 1,000,000, or 3-4 per cent (3.4 per cent) of workforce (based on survey undertaken by YouGov as part of research)
- Unite: (up to) 5,500,000, or 18.5 per cent of workforce (based on survey of 5,000 of own members)
Today, the ONS has announced the new figures having surveyed businesses, and have reported that there were 1.4 million zero-hours contracts used in January & February 2014. The survey shows that zero-hours contracts were used by 13 per cent of all businesses, but also that they were used by 47 per cent of all large businesses. Young people are the most likely to be on zero-hours contracts, with 36 per cent of all people on these contracts aged 16-24.
Given this is the first time this measure has been used, we cannot compare these numbers with previous periods. However, this announcement must act as the catalyst for reform.
Options for reform
The Government has already undertaken a consultation and is expected to publish its report in July. Any response to the problem of zero-hours contracts must address five key areas:
No Hours, No Exclusivity: It is not right that some employers expect staff to work exclusively for them, and yet not guarantee any hours worked. The Government should bring forward legislation to require that any zero-hours contract which includes an exclusivity clause also includes a guarantee of minimum hours per week. 15 hours is the basis taken for tax purposes and an exclusivity clause should be unlawful unless more than 15 hours a week are given. For otherwise the person is really self employed and should be able to seek work elsewhere.
Part-Time Contracts for Part-Time Workers: Too many employers use zero-hours contracts as a means to avoid employment laws. Thankfully when these issues are tested in the courts, the rulings tend to take into account the underlying reality of the employer-employee relationship. Employment law should be clearer. The Government should legislate to require that any worker who is engaged in work averaging over 15 hours a week (or can otherwise reasonably be treated as engaged in an employment) for a period of six months or more must be offered a permanent contract by their employer. Labour’s proposal that it is left to employees to demand one is not strong enough – it should be a clear obligation for the employer too.
Best Practice for Employers: Zero-hours contracts are an almost uniquely British phenomenon, and the lack of international comparators and clear UK legislation has meant that businesses have lacked clear guidance on how to use zero-hours contracts properly. The Government should look at the recommendations put forward by CIPD, which involve ensuring that workers on zero-hours contracts are paid the same as permanent-contract colleagues when they are doing the same job, and that compensation should be given to workers on zero-hours contracts who are given little to no notice of the cancellation of shifts. Some of these should be best practice while others should be backed up with legislation.
Address supply side issues in the Labour Market: There are things the Government can do to make employment law simpler, to make employers less eager to use zero-hours contracts. For example, thanks to the previous Labour Government, the maximum award an industrial tribunal can make is currently £76,574, while the median earnings in the UK are £26,500. This is clearly too high. The maximum award should be brought closer to average earnings. Only around 10 per cent of tribunal awards are greater than average earnings, so very few claimants would suffer. Yet there would be a substantial psychological message sent to businesses which would make them less fearful of taking on a new member of staff full-time.
Help for the self employed: Self employment is on the increase. Many will be sole traders who intend to stay that way. If they take on engagements for part time work they are responsible for their own tax. If self employment continues to rise, this will become more of an issue. Currently there this is no recourse to a payroll tax system that would help with cash flow management. It’s also a threat to the public revenue. So a form of Government-backed payroll tax assistance scheme or ability to have payroll tax operated by the person engaging them should be considered. For the Government, tax receipts would be accelerated. For the worker, cash-flow problems could be avoided.
Much work is being done to repair problems left behind by the last Labour Government. Zero-hours contracts are another of those problems – where Labour should have acted but failed to. The Conservatives are about opportunity and aspiration, yet have a long tradition of protecting people from the excesses of the system. We are not just the party that fixes the economy, we are also the party that cares. Zero-hours contract reform is something we should take forward to ensure people can have the flexibility they may seek yet with the protection they need.