Employment Rights Bill: Workers on zero-hours contracts can decline guaranteed hours says latest government proposals
In this article, we provide an abbreviated breakdown of the key proposals of The Employment Rights Bill pertaining to zero-hours contracts and non-compliance in the umbrella company sector. Plus, commentary from those serving contractors and umbrella workers.
The Employment Rights Bill has moved a step closer to becoming law. This Bill will have overarching implications for zero-hours agency and umbrella workers and the people that hire and pay their wages or salaries
The Public Bill Committee is completing its work and sending it to the House of Commons with several amendments. The Bill is scheduled for its report stage and third reading on Tuesday 11th and Wednesday 12th March 2025. This is where MPs will debate and potentially amend the Bill further. The Speaker will select which amendments are discussed. After this stage, if passed, it will move on to the House of Lords.
Proposed changes:
- Right to guaranteed hours based on a 12-week reference period
- Right to decline the guaranteed hours offered and remain on existing zero or low hours contract if they prefer
- Right to reasonable notice of shifts
- Right to payment for short-notice cancellations
Key issues:
- How these rights will apply to the relationship between end hirers, agencies, and workers
- How these changes will interact with existing agency worker regulations
- Where the responsibilities will fall, between the end hirer, and the agency, or the umbrella company
Balancing the power between workers and employers
The government says the Bill, in regard to zero-hours contracts, is aiming to provide greater security and fairness for workers, particularly those on flexible contracts, by introducing guaranteed hours and ensuring fairer notice of shifts and compensation for cancelled shifts.
“While we’re determined to ensure that the benefits of reforms in the Employment Rights Bill extend to agency workers, we recognise that the application of these new rights might be different. That’s what this consultation is for,” said the Rt Hon Jonathan Reynolds MP, Secretary of State for Business and Trade.
The government believes employers hold too much power, impacting household income and the economy in a wider sense. Here is how the government sees the situation as it stands today:
“Zero-hours contracts generally mean that the worker has a relationship with their employer where they are not obliged to accept work that is offered to them, and the employer does not have to offer work. This can offer some workers flexibility, meaning they can work around other commitments such as childcare or studying.
“However, this type of contract does not offer the worker any form of certainty as to their earnings, making it difficult to apply for credit or a mortgage, to rent a flat, to plan for major events like weddings or holidays, or even to manage day-to-day life expenses. Flexible hours of work can benefit both workers and employers, but without proper safeguards, this flexibility can be one-sided, with workers bearing all the financial risk.
“Certain exploitative practices associated with zero-hours contracts have already been dealt with in legislation. Zero-hours contracts cannot include exclusivity clauses which prevent an individual from working for another employer. However, these measures do not go far enough and still leave the employer with too much power in the relationship.”
What happened in the consultation periods?
In addition to introducing more protections for zero-hours contract workers, the government has concluded its consultation period on tackling non-compliance in the umbrella sector. Much of this is about closing a tax gap, but many feel this move will provide wider protections for umbrella workers, even if it means more responsibility may fall on the recruitment agency or hiring company to stamp out tax avoidance.
Umbrella companies
The government stated in its latest response to the consultation: “The government is therefore legislating to define umbrella companies, to allow for their regulation and to bring them within scope of the Employment Agency Standards Inspectorate’s (and subsequently, the Fair Work Agency’s) remit, through an amendment to the Employment Rights Bill”
“The government is also committed to closing the tax gap and making the tax system fairer by ensuring temporary workers are protected from large, unexpected tax bills caused by unscrupulous behaviour from non-compliant umbrella companies. As announced at Autumn Budget 2024, where an umbrella company is used in a labour supply chain to engage a worker, the government will bring forward legislation to move the responsibility to account for PAYE from the umbrella company that employs the worker to the recruitment agency that supplies the worker to the end client. Where there is no agency in a labour supply chain, this responsibility will sit with the end client. This will take effect from April 2026. More details about this measure can be found in HMRC’s response to Tackling tax non-compliance: umbrella company.
Too many cooks in the kitchen?
The consultation periods regarding zero-hours contracts and non-compliance in the umbrella sector welcomed affected stakeholders, from companies to recruitment agencies to individuals, to come forward and offer their experiences and concerns about both regulatory and tax policy implications. However, given that there are often three or more people or entities involved in such matters, such as the worker, the recruitment agency, the end hiring company, and sometimes even a fourth, the umbrella company, each part of the puzzle wants a fair deal. This has meant that there are several options up for discussion.
Ben Willmott, head of public policy at the CIPD, the professional body for HR, said:
It’s good that the government is allowing more time to try and find a workable solution to the challenge of applying the proposed new right for zero hours contract workers to have a guaranteed hours contract, to agency workers. However, if no effective approach can be developed that works for recruiters, employers and agency staff, the government must be prepared to recognise this and exempt agency workers from these provisions.
Here, we outline some key facts and what we know so far.
Guaranteed hours and fairer shift notice
The government is making changes to employment law to give workers more security and fairness.
Guaranteed Hours for Workers on Zero or Low-Hour Contracts
New Right:
A new law, the Employment Rights Bill, will require employers to offer guaranteed hours to workers on zero-hour contracts or those with very few guaranteed hours.
- The government will decide later what “low hours” means.
- The guaranteed hours should match the hours the worker regularly works, based on their work over the past 12 weeks.
- Again, the government will consult on how “regular hours” will be defined.
- This right will be automatic. Employers must offer it; workers won’t need to ask.
- Workers can choose to refuse the guaranteed hours and stay on their current contract if they prefer.
Why the Change?
- The government is scrapping the previous “right to request” predictable hours, to avoid confusing employers and workers.
- The government wants all workers, including agency workers, to have guaranteed hours that reflect their usual work.
Agency Workers:
The government is considering whether agency workers should get guaranteed hours from the agency or the company they work for (the “end hirer”).
There are two options:
Option 1 (Agency): The agency offers guaranteed hours. This could mean more hours for workers who work for multiple companies. However, agencies might find it hard to guarantee hours they don’t control.
Option 2 (End Hirer): The company using the agency worker offers guaranteed hours. This makes sense as they know their workload best. However, this could change the relationship between the company and the agency worker.
Contracting out of guaranteed hours
Notably, a major change included in the amendments is a new provision which allows a collective agreement to contract out from the rights to guaranteed hours and reasonable notice of shifts in their entirety for both workers and agency workers.
The amendments also sharpen the teeth underpinning these new rights: to avoid employers attempting to “work the system” to avoid triggering these obligations, there is a new potential claim which applies when an employer has tried to manipulate or avoid their obligations – of course, save as agreed in a collective agreement (further bolstering the general trend to empower and give increased relevance to trade unions).
–Lewis Silkin
Law firm Lewis Silkin explains, “This means that the employer and an independent trade union can reach an agreement that excludes the new rights and replaces them with something else, so long as these new terms are incorporated into the contract. For agency workers, the collective agreement can be with the person who has the contract with the agency worker.
“The reference period for calculating average hours has still not been defined, although a period of 12 weeks has previously been mentioned. There is greater clarity, however, around the previously vague obligation to “make work available”. Proposed amendments tighten this point up by referring to the hours that the employer must provide and the worker would be required to work.
“The amendments also sharpen the teeth underpinning these new rights: to avoid employers attempting to “work the system” to avoid triggering these obligations, there is a new potential claim which applies when an employer has tried to manipulate or avoid their obligations – of course, save as agreed in a collective agreement (further bolstering the general trend to empower and give increased relevance to trade unions).”
“Temp-to-Perm” Fees
The Government is aware that if the end hirer offers guaranteed hours, that this could effectively mean the hirer is employing the worker, and therefore triggering “temp to perm” fees, that employment agencies charge.
If a company offers guaranteed hours to an agency worker (Option 2), they might have to pay a fee to the agency. This is because agencies can charge a fee if a company hires a worker they provided. Under current legislation the end hirer would generally be required to pay a transfer fee to the agency (called a ‘temp-to-perm’ fee) or opt to pay for an extended period of hire.
This is because an employment agency can sometimes charge a transfer fee to a hirer if they directly employ a worker that the agency had initially provided. An employment agency can only charge a transfer fee if all the following apply:
- Their contract with the hirer gives them the option to extend the worker’s assignment
- The hirer does not take the option to extend the assignment
- The hirer directly employs the worker less than 8 weeks after the end of their initial assignment – or less than 14 weeks after it started, if that is later
If the worker had more than one assignment with the hirer, and there were more than 42 days between assignments, the later assignment is treated as if it was the first one.
The government outlines an example in their latest consultation report, “For example, an employment agency may supply a worker to a hirer for 4 weeks. The hirer may then wish to offer the worker a permanent job. The agency’s contract with the hirer may say that the hirer must pay a transfer fee unless the hirer first hires the worker from the agency for an extra 6 weeks.
“The hirer can pay the transfer fee now or keep hiring the worker from them for the extended period (that is, the additional 6 weeks). Alternatively, the hirer can stop hiring the worker and wait 10 weeks before recruiting them directly.”
The rules around these fees are complex and will depend on the contract between the agency and the company.
Fairer notice of shifts and payment for cancelled shifts
Reasonable Notice:
- Employers will have to give workers reasonable notice of their shifts and any changes
- This gives workers more certainty about their working hours and helps them plan their lives
- If employers don’t give enough notice, workers can take them to an employment tribunal and claim compensation
- The government will consult on what constitutes reasonable notice
- Both the agency and the company using the agency worker will be responsible for providing reasonable notice
The government intends to ensure that agency workers, like other workers, are entitled to reasonable notice of their shifts.
However, the government said in its response to the consultation on its application of zero-hour contracts for agency workers that this is complicated by the tripartite relationship between the agency worker, the agency, and the end hirer.
“Agencies often depend on end hirers to know when a shift is available. It is then often for the agency to pass on that information to the agency worker in a timely manner. The government proposes that both the end hirer and the agency should be responsible for providing reasonable notice of shifts.
“The government accordingly considers that a tribunal should be able to find that either the agency or the hirer or both should be liable to compensate the agency worker for their losses suffered as a result of unreasonable notice, but only to the extent that they are responsible for the unreasonable notice,” said the government report.
Cancelled Shifts:
- If employers cancel or shorten shifts at short notice, they will have to pay workers compensation
- This protects workers who might have made arrangements (like childcare or travel) and lost money
- The amount of compensation and what counts as “short notice” will be decided later
- Agencies will be responsible for paying agency workers for cancelled shifts and may have contractual agreements with the end hirer to recoup those costs
The government is seeking views on whether legislation should be introduced to ensure agencies can recoup costs from end hirers.
Useful facts
How many people are on zero-hours contracts?
- Approximately 1,030,000 people are on zero-hours contracts in the UK as of March 2024
- 37% of zero-hours workers are aged 16-24
- 53% of zero-hours workers are women
- 24% of zero-hours workers are in full-time education
Agency worker figures:
- Around 900,000 agency workers are in the UK
- Approximately 140,000 agency workers are also on zero-hours contracts
- The agency worker market is worth approximately £34 billion to the UK economy
Commentary from those serving contractors
Commenting on the latest developments, Dave Chaplin, CEO of contracting authority ContractorCalculator said: “Whilst the Government’s plans to protect vulnerable workers is laudable, I fear its implementation is profoundly problematic and could create more problems than it solves.
Truly self-employed contractors and consultants have chosen independence over rights, benefits and protections. They are neither vulnerable nor exploited and value their autonomy and flexibility. They do not want to be forced into false employment.
–Dave Chaplin, CEO ContractorCalculator
“There are some concerns around false self-employment, where unscrupulous firms may seek to work around the new rules. Whilst that may occur for a small minority of workers, the worry is that the problem may be overstated, resulting in a sledgehammer approach to crack a nut, thereby damaging genuine self-employment.
“The commentary around the Bill appears very one-sided and fails to distinguish between workers who need protection and those who have willingly chosen to be their own boss, the truly self-employed.
“Truly self-employed contractors and consultants have chosen independence over rights, benefits and protections. They are neither vulnerable nor exploited and value their autonomy and flexibility. They do not want to be forced into false employment.
“We need a balanced approach that caters for all if Labour wants to grow our economy, and the truly self-employed have a vital role to play in that mission, left to flourish unhindered by punitive overreaching legislation.”
Commenting on tackling tax avoidance in the umbrella market, Crawford Temple, CEO of Professional Passport, an assessor of payment intermediary compliance said: “Yesterday, confirmed what we already knew, that the Government will be pressing ahead with its plans to tackle tax avoidance and put the onus on agencies to operate PAYE correctly.
“However, there are many unanswered questions still and the true impact of the changes will only be fully understood once the draft legislation is provided and we can fully understand the size of the task facing agencies and providers so they can adequately prepare ahead of April 2026.”
Of course, none of these changes would have been necessary if HMRC had used all the data and intelligence they already have at their disposal to shut down the non-compliant providers quickly and effectively. HMRC needs to step up and we know that legislation is not the sole answer and must be supported with visible compliance and enforcement which has been lacking from HMRC in recent years.
–Crawford Temple, CEO of Professional Passport
Temple continued, “Yesterday’s announcement also clarified the Government’s intention to define and regulate umbrella companies. However, any definition needs careful consideration as any definition can be re-engineered and could open the doors to further non-compliance. The government needs to tread carefully in the implementation of its plans as any loopholes could simply lead to further exploitation of the rules and another boom in non-compliance.
“We also heard that regulation will take effect. However, this is with regards to employment rights which is laudable and will not encompass umbrella market regulation.”
Shifting PAYE responsibility to agencies and end clients is a game-changer, ensuring taxes are properly collected before rogue umbrella companies can rip off workers and the exchequer with non-compliant practices.
–Dave Chaplin, CEO ContractorCalculator
Chaplin also welcomes what he said was “the long overdue regulation of umbrella companies and the measures to close down the widespread non-compliant schemes.”
He said the government’s new measures mark a major step forward in protecting workers and tackling tax non-compliance. “Shifting PAYE responsibility to agencies and end clients is a game-changer, ensuring taxes are properly collected before rogue umbrella companies can rip off workers and the exchequer with non-compliant practices.
“Regulating umbrella companies will finally bring accountability to an industry that has operated unchecked for too long. The fight against tax fraud and unfair deductions isn’t over, but these reforms lay the foundation for a fairer labour market.”
