24 November 2015

Zero Hours Contracts

This article originally appeared in the Autumn edition of the ISBA Bursar’s Review.

Zero hours contracts have received considerable negative publicity over recent years, culminating in a recent change in law surrounding their use.

However, when used correctly they can be a valuable tool for employers and many Schools use them very effectively for a range of different categories of staff.

What are they?

The term “zero hours” is an arrangement whereby a worker or employee has no set hours of work. The employer does not guarantee any hours of work and pays only for work actually done. Until recently, the term “zero hours” has not been defined in legislation, and a zero hours contract may not be labelled as such: the terms “casual worker contract”, “as required/as needed”, and “flexible work” are sometimes used instead.

When are they used?

Zero hours contracts are usually used for casual workers, where the need for work is not constant.
Within Schools, zero hours contracts are frequently used for peripatetic music teachers, sports coaches, minibus drivers and exam invigilators to name a few, and they are a vital tool to ensure Schools can respond appropriately to a need that fluctuates and is often dictated by pupil take-up of activities. This need may vary on a termly basis and use of a zero hours contract is likely to enable a School to meet that need.

Worker or employee?

There are complex legal intricacies in whether a zero hours contract reflects an employment relationship or one of worker. In essence, in order to be an employee, there must be mutuality of obligation and control, which are not required for a worker. In the context of zero hours staff, this concept of “mutuality of obligation” is of most significance. If there is genuinely no obligation on the employer to provide any work and none on the zero hours member of staff to accept any work provided, then the relationship is too casual to constitute one of employment. This means that if you have a member of staff who must accept hours if asked, and the School has control over, for example directing how, when and where they carry out their work, when holiday can be taken, it is likely that they will be an employee. It is important to note that an individual’s status may change over time. Given the complexities over the status of the relationship, specific legal advice should be sought.

Workers benefit from some rights afforded to employees, notably the right to paid holiday under the Working Time Regulations, the right to the National Minimum Wage and pension auto-enrolment. However the vast majority of employment rights, including the right not to be unfairly dismissed, will not apply.

Difficult areas – Holiday

Whether an employee or a worker, staff working under zero hours contracts will have the right to paid holiday. Where hours fluctuate it can be administratively complex to calculate the amount of holiday that has accrued, and where staff do not have regular hours actually taking that holiday can be a bit of a farce. These difficulties are largely what led to employers adopting the method of “rolled up” holiday pay. Essentially the hourly rate was said to include an element for statutory holiday.

However, in 2006, the European Court of Justice held that this practice was contrary to the Working Time Directive (WTD) because it meant that workers did not receive pay while they were taking holiday – this may deter them from taking holiday and therefore defeats the purpose of the WTD. This can lead to potential historic claims for back pay (which as of 1 July 2015 have fortunately been restricted to the last two years) and Schools who continue to pay holiday in this way should consider amending their practices. Specific legal advice should be sought.

There are a number of ways of calculating and paying holiday for staff who work on a zero hours basis. Where staff work during term time only, one way to calculate the holiday pay is to make a payment at the end of each term (i.e. in December, April, and August, so when holidays fall) representing the amount of holiday that has accrued that term as a result of the number of hours worked. This achieves the aims of the WTD by ensuring that staff receive holiday pay while they are not at work, i.e. during school holidays. The same method can be used for staff working year round, albeit that the sum for holiday may be paid on a monthly or quarterly basis and it is important to attribute it to actual leave. Where a zero hours member of staff works for a one off assignment or period, e.g. exam invigilation for a few weeks each term, you can calculate the amount of holiday that has accrued for the defined period, pay it and determine that specific dates will be treated as holiday for which they will receive their accrued holiday pay.

An alternative method is to calculate the amount of holiday that has accrued each month, or quarter, and itemise it on the payslip as an accrued amount of leave for the zero hours member of staff to take at a time to be agreed. They would then of course be paid for that leave. This clearly demonstrates that holiday is paid at the time it is taken.

So how much holiday actually accrues? You need to ensure they accrue holiday at the same rate as an equivalent full time member of staff. If there is no equivalent, the statutory minimum holiday entitlement of 5.6 weeks should be used. The statutory minimum essentially equates to 12.07% of hours or days worked. The simplest way to calculate it is using 12.07% of hours that have been worked in the appropriate time period – this will give you the number of hours of holiday that have accrued.

Other difficult areas

Clearly the School’s normal recruitment checks will apply and all zero hours staff need to be appropriately vetted. Where a member of staff does not undertake any work for the School (or another school) for a period of three months or more: in these circumstances you will need to carry out these checks again before the next assignment.

Any training needs to be kept up to date as for other members of staff so Schools need to ensure zero hours staff are invited to staff training, particularly on important issues such as child protection.

Most schools will not wish to pay zero hours staff any contractual sick pay. However, zero hours staff, whether workers or employees, will be entitled to SSP when they are off sick on a day when they are due to come into work, provided they meet the SSP requirements.

You may end up with zero hours staff “on your books” who are no longer doing work for you. This may lead to concern over how to terminate the arrangements due to risk over unfair dismissal claims. If they are not used frequently it is more likely that the staff are workers rather than employees and therefore the engagement can be terminated. Some schools write to their zero hours workers annually to ask if they would like to remain on the books. If they are employees and you no longer wish to use them, you will need to go through a proper process in terminating the contract.

Zero hours in the news

Zero hours contracts have received a lot of bad press over recent years. This is largely however as a result of exploitative employers using them inappropriately in circumstances where normal employment contracts with guaranteed hours should be used, resulting in workers having no security of income. This has given them a bad reputation with some level of stigma attached.

Changes in the law

As a result of the negative press, prior to the 2015 election there was talk of an outright ban on zero hours contracts. However this was without fruition and instead the result has been a ban on exclusivity clauses that some unscrupulous employers were including within their contracts: while not guaranteeing hours to an individual, they were restricting them from working elsewhere. It is now unlawful to do this. Schools will want to ensure that zero hours staff are prevented from carrying outside activities (including outside work) that would impact on their suitability for a role within the School, and our model contract provides for this. However it is not acceptable to prevent them per se from carrying out work elsewhere.

The Future of Zero Hours

Despite the legal changes, with no enforcement measures and the possibility for employers to simply not offer hours to those who are working elsewhere, the stigma attached to zero hours contracts may remain. It is important to review their use to ensure that the need genuinely varies as circumstances may change over time. Provided they are used appropriately, they are a valuable tool which enables an efficient use of staff and resources.

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About the Author
Emilie Darwin, Partner
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