Zero hours crackdown could cost firms up to £2.9bn a year

A government analysis suggests businesses could incur costs of up to £2.9 billion annually due to a crackdown on zero hours contracts, according to a report released on Wednesday. Under the proposed reforms, businesses would have to offer guaranteed hours to staff before they can work a certain number of hours. Skills Minister Baroness Jacqui Smith emphasized that the reforms would ensure workers receive fair pay, but business groups argue that the costs to employers are disproportionate compared to the benefits for workers.

The government analysis identified potential trade-offs, including increased administrative costs and reduced flexibility for companies, which could make it harder for employers to adapt to fluctuations in demand. At the higher end of the estimate, about £1.2 billion in costs would arise from businesses compelled to compensate workers for cancelled shifts.

However, the central estimate of the policy's cost is £1.1 billion. This figure depends on the threshold of hours the policy applies to; if it applies to workers working 48 hours a week, the cost to businesses would be higher.

Hospitality and retail companies, which frequently employ zero hours workers, would be most affected by the changes. The government aims for the policy to apply to workers with between eight and 20 hours of work per week. The proposal was released as part of a consultation to determine the final threshold. Baroness Smith stated that the government would closely examine how to implement the changes, noting that workers should not be on contracts where they are uncertain about their employment status.

Business groups, however, contend that the costs are higher than initially predicted. Kate Shoesmith, director of policy at the British Chambers of Commerce, described the additional costs as a "further hammer blow" for struggling companies. She emphasized that the country is already grappling with a youth unemployment crisis, and now is not the time to make it more expensive for employers to hire.

Helen Dickinson, chief executive of the British Retail Consortium, questioned whether the reforms would deliver value to workers due to the financial burden on businesses. Retailers would also face substantial costs to update their payroll systems.

The Trades Union Congress (TUC) argued that the primary benefits of the legislation would accrue only if businesses cancel workers' shifts at the last minute. A TUC spokesperson stated that the goal of the legislation is to end this practice and provide variable-hour workers with security and stability, so no good employer should have anything to fear from the reforms.