Zero hours contracts: better for business, worse for workers?

Unemployment has been steadily declining, but what kind of jobs are being created? And are they worthy of the name?

New figures out this week suggest that the increase in 'zero-hours' contracts might be one of the main reasons behind the rising employment rate. According to the Chartered Institute of Personnel and Development (CIPD), there are one million people in the UK on zero hours contracts - four times as many as official estimates. 1% v 4%?

What is a zero hours contract?

Someone on a zero-hours contract has agreed to be available for work as and when required but has no guaranteed hours. For some, this is the definition of flexible working. For others, it's little short of exploitation.

One BBC journalist characterised zero hours contracts as "employment by emoticon", after interviewing a woman who received a text from her boss with either a smiley face or a sad face, depending on whether she was or wasn't needed in work.

There is ongoing debate about whether those employed on zero hours contracts are "workers" or "employees". Being classed as an employee affords you certain rights - such as maternity pay or sick leave - that, as a worker, you aren't necessarily entitled to. Those who have been on zero hours contracts for several years might find that their employer owes them a duty of care. However, as it stands, it's up to them to challenge their employer.

A new survey by the CIPD suggests that one million people in the UK are on zero hours contracts. Meanwhile, the Office for National Statistics puts the number at 250,000. 

Why the discrepancy in the numbers?

While the CIPD has surveyed employers, the ONS surveys employees. This is a critical distinction because while employers generally know on what terms they're employing their staff, many workers don't know how to define their contract.

The CIPD polled a "nationally representative sample" of 1,000 employers to estimate the number of people on zero hours contracts. Among the 19% of employers with at least one person on a zero hours contract, about one in six were employed on these terms. CIPD's researchers therefore concluded that some 3% of the workers covered in the survey were on zero hours contracts, which equates to one million people nationally.

Meanwhile, the ONS estimates the number of people on zero hours contracts via a much larger sample - the Labour Force Survey (LFS). Every month, a sample of people are asked questions about their employment status. However, a lot of people don't know that they're on a zero hours contract. As the Work Foundation has pointed out, it's quite possible that someone on such a contract would instead see themselves as "on call" or "flexible working".

Before the CIPD published its findings, the ONS had already admitted that its figure was likely to be an underestimate. In fact, only a week ago the ONS adjusted its own number upwards - from 200,000 to 250,000. 

The CIPD report is due to be published in the autumn, so we don't have access to the raw data. What we do know is that since 2004 there has been a steady increase in the proportion of people employed on zero hours contracts - at least according to the ONS's measure. 

Source: ONS

A government survey of businesses confirms this trend: between 2004 and 2011, the proportion of workplaces with any employee on a zero hours contract doubled from 4% to 8%.

Does zero hours mean zero rights?

That was how Lord Oakeshott, the Lib Dems' former Treasury spokesman, described zero hours contracts earlier this year. He argued that the arrangement meant many employers offered their staff little to no security. Other MPs have argued that many people on these contracts are living a hand-to-mouth existence because zero hours jobs are concentrated in sectors that pay the minimum wage.

CIPD noted that the voluntary sector and the public sector were both more likely to use zero hours contracts than private sector employees. We've already looked at the prevalence of this type of contract among social care workers.

As well as surveying businesses, the CPID also polled 148 people employed on zero hours contracts, asking them whether they were able to work often enough "to sustain a basic standard of living". 14% of them reported that their employer often or very often fails to provide them with sufficient hours. However, over half said this doesn't happen very often. For some people, zero hours contracts offer the chance to work flexibly, around existing commitments.

At the same time, people on zero hours contracts now typically work fewer hours than they did - in 1998, the average working week was 30 hours, while in 2012 it was only 21 hours. This might suggest that as zero hours contracts have proliferated, there is less work to share out. This led trade union boss Dave Prentis to propose that the rise in the number of zero-hours contracts also "calls into question government unemployment figures".

In the meantime, the government is conducting a review into the state of zero hours contracts, which it expects to report in the autumn.

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UPDATE 11 Aug: This article was amended to describe our previous article as covering social care workers not just social workers.