Employee and Zero Hours Contracts

Introduction

The current paper considers the increased popularity of zero hours contracts and key issues associated with them. According to the data provided by the Office for National Statistics, there are approximately 22.2 million full-time employees, 8.2 million of part-time workers, and 1.4 million of zero hours contracts that represent about 0.6 million of zero hours employees. The number of zero hours employees is lesser than the number of zero hours contracts, because the workers may have several contracts. It should be stated that the people on zero hours contracts represent approximately 2% of total UK labour force. This number is currently increasing and it is very actual to consider the arguments of all sides of discussion regarding zero hours contracts key issues.

First of all, it is noteworthy that the zero hours contracts are becoming more popular in modern conditions of economy. Before the direct considering of the key issues related with zero hours contracts, the clear definition of these contracts should be provided.

The term 'zero hours' is not defined in legislation, but is generally understood to be a employment contract between an employer and a worker, which means the employer is not obliged to provide the worker with any minimum working hours, and the worker is not obliged to accept any of the hours offered (Zero Hours Contracts n.d.).

Zero hours contracts are also can be called as causal contracts, since such contracts allow the employers to hire workers with no guaranties to work. It means that employees are included in the working process only when they are needed and, as a result, employees’ salary depends on the scale of performed job.

Thus, the key issue regarding the using of zero hours contracts should be considered. First of all, according to the employees’ common concerns, zero hours contracts often do not provide enough number of working hours and, that is why, employees’ financial stability and their security is under risk. It is noteworthy that such concerns are reasonable, since the employees’ salary depends on their productivity that, in turn, depends on the available technologies and working hours. Thus, if employers are not obliged to guarantee working hours, employees’ salary falls. These concerns are approved by recent researches in accordance with which approximately 16% of zero hours workers are not provided by enough hours per week.

It should be also noted that zero hours employees’ do not have the same rights as compared to traditional contracts workers and, that is why, there are other concerns related with employers’ using these contracts to avoid responsibility.

Other issues regarding the expansion of zero hours contracts are related with difficulties to obtain credit cards or mortgages without guaranteed income provided by traditional contracts. As it is known, credits give consumers to move the part of their future income for current consumption. It means that the current consumption may be more than the customer’s income. That is why many zero hours employees do not have such opportunity, since their income is not stable and guaranteed by employers.

There are other concerns regarding the zero hours contracts popularity. These contracts’ popularity is considered by some experts as the government’s tool to understate the real unemployment rate within the country. According to these contracts zero hours employees are considered as employed and, as a result, the current unemployment rate is higher, regardless insufficient number of hours provided to zero hours workers.

Additionally, these contracts popularity can be caused by using them as a management tool. According to this opinion, zero hours contracts are often used by companies’ managers to improve the management efficiency, since managers may provide more hours for favored employees and less for those who are not so.

Summarizing this part of the paper, it should be noted that there are a lot of concerns regarding the increased popularity of the zero hours contracts that may be attractive for all parts of agreement, including employers, employees, and government. However, there are also facts that decrease these contracts popularity and lead to their critique.

In addition, the arguments of the all sides of the debate should be considered, including how big issues zero hours contracts are. First of all, it should be stated that there are two key arguments regarding the zero hours contracts and their increased popularity. These contracts critics emphasize that zero hours workers are not often provided by enough number of working hours and, that is why, employees’ financial stability and their security is under risk. It means that the employees on zero hours contracts do not receive an enough income, with the entire range of negative consequences. However, according to the data presented by Chartered Institute of Personnel Development (CIPD) survey, zero-hours employees are more satisfied by their job in comparison with the average employee in the UK. In addition, such workers is happier by their. Interestingly that 27% of zero-hours workers think that they are treated unfairly by their companies as compared to 29% of employees on traditional contracts. Such surprising data means that zero hours employees are more satisfied by their job, than the average UK employee. In fact, these data may justify the increased popularity of these contracts. However, in accordance with the Labor Force Survey, 75% of workers on zero hours contracts say that their working hours are varied each week, while 25% of employees say they do not. It should be taken into account that the main purpose of the zero hours contracts usage is the opportunity to vary the short-term hours. That is why such big percentage of employees approved the variation in their working hours is not surprisingly.

On the other hand, the supporters of the zero hours contracts emphasize that these contracts provide the employees to use their flexibility. In fact, zero hours workers are able to work for two or more companies and organize their life style in the best possible way. For example, such contracts allow students to gain a needed experience of working. In fact, as it is evident from the test conducted by the Labour Force Survey, approximately 18% of zero hours workers said that they are currently looking for another job in comparison with 7% of all employees. It means that 82% of zero hours employees are very satisfied by their job and they do not plan to look for another job.

In addition, the main strengths and weaknesses in the arguments of the two sides in the debate should be considered. Answering this question, it is noteworthy that the zero hours contracts strengths and weaknesses should be considered from the each side’s point of view, since some feature of zero hours contracts may be considered as a strength for employers and weakness for employees. That is why it would be reasonable to divide these strengths and weaknesses in accordance with their side.

First of all, the zero hours contracts for employers should be considered. “Employers say zero-hours contracts allow them to take on staff in response to fluctuating demand for their services, in sectors such as tourism and hospitality” (What are Zero-Hours Contracts 2014). Thus, the first advantage of usage the zero hours contracts for employers is their ability to maximize the employers’ workforce in respond to fluctuations in demand on their production. As it is known, economists distinguish three kinds of unemployment such as structural, frictional, and cyclical. Frictional unemployment is related to the constant moving of labour force between regions and kinds of jobs as well as certain stages of people’s life. Economists consider the fictional unemployment as inevitable and wishful to some extent since many workers will be able to find a more effective, highly paid job. Structural unemployment occurs when the supply of labour force is not matched with its demand. Such situation usually occurs due to the changes in the structure of consumers’ demand. Consequently, it leads to the changes in the labour force demand. Therefore, the structure of labour force does not match with the structure of jobs. Structural unemployment is also considered as inevitable. On the other hand, cyclical unemployment is related to downturns of business activity.

In fact, in the case of recession, the demand on goods and services is reduced and, that is why, the employers reduce their output and unemployment rate is increased. Therefore, the structural and frictional unemployment are inevitable, i.e. such types of unemployment can not be avoided in any economic system while cyclical unemployment is equal to zero at the stage of economic ascension. That is why the full employment is reached when the cyclical unemployment is equal to zero.

Table 1.

The UK Indicators of Economic Health 2005 2006 2007 2008 2009 2010 2011  2012 2013
Inflation, consumer prices (annual %) 2,05 2,33 2,32 3,61 2,17 3,29 4,48 2,82 2,55
GDP growth (annual %) 3,23 2,76 3,43 -0,77 -5,17 1,66 1,12 0,28 1,74
Unemployment, total (% of total labor force) (modeled ILO estimate) 4,70 5,50 5,40 5,40 7,80 7,80 7,90 7,90  
Long-term unemployment (% of total unemployment) 21,00 22,20 23,70 24,00 24,40 32,60 33,40 34,70  
Part time employment, total (% of total employment) 22,40 22,50 22,30 22,30 23,40 23,90 23,80 24,10  

According to the data provided in Table 1, the UK’s unemployment rate was 5.3% in 2008 and 7.0% in 2012. Such significant increasing of the unemployment rate is a result of the global financial crisis and economic recession. As it is evident from the data provided in Table 1, the current state of the UK economy is not the best, since its rate of economic growth is lesser than before the crisis. Consequently, the long-term unemployment in percent of total unemployment increased from 21% in 2005 to 34.7% in 2012. In additional, pert-time employment grew from 22.4% in 2005 to 24.1% in 2012. Taking into account the data provided in the figure below, it is evident that there is a strong connection between the UK economic state and number of zero hours contracts.

Thus, the main conclusion of the previous analysis is a fact that employers apply zero hours contracts to increase their flexibility in respond to economic conditions.

In addition, the employers use the zero hours contracts in order to improve their risk management system. This advantage is similar to the previous one, since it allows the employers to reduce the risk of loss their financial stability in a case of economic recession and decreased demand.

The next advantage of usage zero hours contracts is the employers’ ability to reduce their initial costs associated with recruiting and staff training. As it is known, there are two various kinds of costs, including fixed and variable costs. Variable costs depend on the volume of activity, while fixed costs remain unchanged. Therefore, there is an inverse connection between the company’s output and the fixed costs’ percentage in the structure of total costs. Conversely, the percentage of variable costs will be increased with grown level of output. Thus, the costs associated with training the full-time workers are the companies fixed costs, while the costs related with zero hours employees can be considered as variable costs. Therefore, the employers’ may organize their cost system better by using zero hours contracts.

In addition, zero hours contracts allow the employer to avoid common employment obligations that should be followed in a case of traditional contracts.

However, the weaknesses of usage zero hours contracts for employers include:

  • employers can be faced with a staff issue regarding the high employee turnover rate;
  • decreased cooperation among the company’s employees;
  • increased number of conflicts within the company, due to impaired friendly relations between workers.

On the other hand, zero hours contracts provide the employees opportunity to organize their time in the best possible way. According to the data provided by the Labor Force Survey, approximately 26% of total zero hours workers are full-time students. Thus, such flexibility is a great advantage of these contracts for employees. the following quote only approves the previously made conclusion:

Employers also say that many workers appreciate the flexibility a zero-hours contract gives them. Some 38% of workers in the CIPD research described themselves as employed full-time, working 30 hours or more a week, despite being on zero-hours (What are Zero-Hours Contracts 2014).

Other strength of zero hours contracts for employees is reduced workload as compared to traditional contracts workers. However, the weaknesses of zero hours contracts for employees include:

  • decreased income as compared to full-time employees;
  • lesser number of rights;
  • decreased employees’ stability and security;
  • difficulties associated with obtaining credit cards.

Of course, we do not strive to absolute veracity and realize that these lists are subjective and can be expanded that requires further analysis.

Additionally, other evidence that can help to make a judgment on whether zero contract hours should be regulated in some way, or even banned, should be identified. It should be stated that, in my opinion, the entire range of zero hours contracts strengths and weaknesses, pros and cons for all sides of discussion should be taken into account to make the mentioned judgment. However, I believe that due to the high number of these contracts strengths for employers, workers, and even government, they should not be banned. On the other hand, the decreased employers’ obligations, employees’ security and stability should be regulated. For example, the minimal fixed employees’ income regardless the available hours may be considered as a way.

Conclusion

Summarizing the current paper, it is noteworthy that the number of zero hours contracts was increased during the last decade. These contracts are currently becoming more popular in the world in general and in the UK in particular. It is caused by a lot advantages of these contracts for all sides of agreement, including employers, employees, and government. However, it should be also stated that these contracts are quite controversial due to many weaknesses for employees, including decreased employees’ income, stability, and security as compared to full-time employees, as well as difficulties associated with obtaining credits. That is why zero hours contracts opponents support an opinion that they should be banned, while their supporters do not think so. There are a lot of arguments of these two sides of discussion. However, the final decision should be made based on the wide analysis of all arguments.

Reference List

  1. Contract Types and Employer Responsibilities n.d. Gov.uk.
  2. Farnham, P. (2014), “Economics for Managers”, Pearson, ISBN 978-0-13-277370-6
  3. Indicators n.d. World Bank.
  4. OECD Economic Outlook May 2014. OECD Library.
  5. What are Zero-Hours Contracts (2014). BBC News.
  6. World Economic Outlook (WEO) 2014. IMF.
  7. Zero Hours Contracts n.d. Acas.
  8. Zero Hours Contracts: Understanding the Law 2013. CIPD.

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