Employers are using zero-hours contracts to cut wage bills, study finds

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A quarter of employers who hire staff on zero-hours and other flexible contracts do so in order to cut their wage bill, according to a study that will fuel calls for reforms to boost workers’ rights.

The finding by the Resolution Foundation think-tank, based on a poll of 750 companies, will sharpen concerns that while flexible contracts help bosses manage uneven demand and cope with economic uncertainty, they can also act to the detriment of staff and workers.

The Resolution Foundation said the research showed the contracts carried “real costs for some workers” who faced “lower wages and a smaller pension, as well as the insecurity and volatility they can bring”.

Almost 4mn people in the UK, or more than one in eight employees, work on some form of flexible contract that could be viewed as “precarious”, the think-tank noted.

A pledge to ban zero-hours contracts is one of the central measures in the opposition Labour party’s “New Deal” for workers, and it has vowed to introduce legislation for within 100 days if it wins the upcoming general election.

The study found that managing uneven demand was the most common reason employers gave for using flexible working arrangements. Around half said this was why they used the contracts and a quarter said it was the main reason.

But one in four cited cost-cutting as a rationale for using flexible working arrangements that range from casual and seasonal work to zero- and variable-hours contracts that do not offer guaranteed periods of employment.

Some wanted to limit working hours in order to offset increases in the hourly minimum wage, and others sought to spend less on non-wage benefits such as sick pay, pension contributions and national insurance.

The companies who used flexible contracts most heavily — concentrated in transport and logistics, retail and hospitality — were also more likely than low users to cite cost-cutting as their main motivation.

Business leaders argue these forms of flexibility allow them to manage busier and quieter periods and say that many staff prefer contracts that give them a better work-life balance.

But Hannah Slaughter, senior economist at the Resolution Foundation, said the findings showed that flexible contracts were not “a simple win-win for firms, workers and consumers alike”.

She argued, however, that calls for an outright ban on zero-hours contracts and other flexible arrangements — which some unions and workers’ rights groups have campaigned for — could also be counter-productive.

Labour’s plan to strengthen workers’ rights aims to address concerns that strong employment and a rising minimum wage have been accompanied by growing precariousness for workers who do not know how much they will earn in any given week or how long their job will last.

An outright ban on zero-hours contracts would be controversial even among trade unions. Labour’s proposal, which has the backing of the Trades Union Congress umbrella body, is instead to give workers a right to a contract that reflects their regular hours of work.

The Resolution Foundation found two-thirds of employers would use flexible contracts less if government policy changed along these lines. Without change, half of those already using flexible contracts said they would increase the share of their workforce on variable hours over the next five years.

“New workers’ rights, rather than outright bans, could help to stem over-reliance on flexible contracts and the problems they can create for workers, while maintaining flexibility for workers and firms who value it,” Slaughter said.