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

The government has warned that a crackdown on zero hours contracts could cost businesses up to £2.9bn annually, based on its own analysis. Labour's employment reforms aim to limit the number of hours workers can perform before they receive guaranteed time. According to official analysis, the policy could cost employers between £350m and £2.9bn, depending on the threshold of hours impacted.

Skills Minister Baroness Jacqui Smith argues the reforms will ensure fair pay, while business groups contend the cost to employers is disproportionate. The potential trade-offs include increased administrative costs and reduced flexibility for companies, making it harder for them to adapt to changes in demand. At the upper estimate, about £1.2bn would be spent on compensating workers for cancelled shifts.

The overall cost depends on the policy's application threshold, with costs falling short of higher estimates if it applies to fewer hours. The government estimates the reforms could boost the economy by £10bn, lowering the net average cost to between £300m and £1.4bn. Hospitality and retail companies, reliant on zero hours workers, would be most affected. The consultation on the number of hours under new rules is ongoing.