Zero-hours contracts can seem like the ideal staffing solution for small businesses with fluctuating demand. They offer flexibility, keep costs predictable, and allow you to bring in extra help when things get busy, for example, during Christmas or summer events.
But flexibility cuts both ways. Poorly handled, zero-hours arrangements can create confusion, resentment, or even legal risk. Before using them, it’s worth understanding what can go wrong and how to avoid the common traps.
1. Mixing up “zero-hours employment” and “casual worker” status
One of the biggest sources of misunderstanding is that the term “zero-hours contract” isn’t a legal category in itself. It simply describes an arrangement where there’s no guaranteed minimum number of hours.
That can take two main forms:
- A zero-hours employment contract, where the person is an employee with continuity of employment but variable hours; or
- A casual worker agreement, where each assignment is separate and there’s no ongoing obligation between shifts.
The distinction matters. Employees gain additional rights over time, such as redundancy pay and protection against unfair dismissal, while workers do not.
If you treat people as employees in practice, giving them regular shifts, expecting them to attend, and providing ongoing benefits, a tribunal may decide they’re employees, regardless of what the paperwork says.
Tip: Decide early which model fits your business and draft the contract clearly to reflect that reality.
2. Assuming “zero-hours” means “no rights”
Some employers assume that if staff have no guaranteed hours, they also have minimal rights. Not true.
Zero-hours workers and employees are entitled to:
- Paid annual leave (pro-rated based on hours worked)
- The same minimum notice for shifts as any other staff member
- Itemised payslips
- Protection from discrimination under the Equality Act 2010
- National Minimum or Living Wage
Failing to honour these rights is one of the quickest ways to create disputes. Temporary or flexible doesn’t mean disposable.
3. Failing to plan scheduling and communication
A well-written contract can’t fix poor communication. One of the biggest frustrations for people on zero-hours arrangements is inconsistent or last-minute scheduling.
If you call someone in for a shift and then cancel at short notice, they may lose pay, or, worse, lose trust in your business. Similarly, offering too few or too many hours without warning can cause friction.
Best practice:
- Publish rotas as early as possible (a week’s notice is ideal).
- Have a clear cancellation policy, if you cancel within a set period, consider paying part of the shift.
- Use scheduling software or even a shared spreadsheet to keep everyone on the same page.
Predictability, even in a flexible system, builds goodwill and reliability.
4. Over-reliance on one individual
Zero-hours contracts are often used to manage peaks in demand. But relying heavily on the same person, week after week, can undermine the arrangement.
If someone works near-continuous hours for months, they may start to look more like a regular employee, potentially with continuous service rights.
Avoid this trap by:
- Rotating shifts among a pool of workers.
- Using short fixed-term contracts for people who work regular patterns over a defined period (such as the Christmas season).
- Reviewing hours every few months to ensure the reality matches the intended flexibility.
5. Poor record-keeping and holiday pay errors
Calculating and paying holiday for zero-hours staff can be fiddly, particularly where hours vary week to week. The most common error is either forgetting to pay it or paying it incorrectly.
Holiday should normally accrue as 12.07% of hours worked. For genuinely short, irregular assignments, you can use rolled-up holiday pay (clearly itemised on payslips), but for longer-term zero-hours staff, it’s better to accrue and allow leave to be taken.
Keep accurate records of hours worked, holiday accrued, and pay provided. If challenged, clear documentation is your best defence.
6. Ignoring morale and fairness
Zero-hours arrangements can easily breed resentment if staff feel they’re being used to plug gaps without stability or recognition. Word travels fast in small communities, and reputation matters.
Simple actions can help:
- Communicate openly about expected busy and quiet periods.
- Offer fair opportunities for extra hours or more stable contracts when available.
- Include zero-hours staff in team briefings and celebrations, they’re part of your brand too.
People who feel respected and valued are far more likely to stay flexible and available when you need them most.
7. Not reviewing contracts over time
A zero-hours model that worked when you had three employees might be less effective when you’ve grown to ten.
Regularly review whether these arrangements still fit your business:
- Could some people move to part-time contracts for greater consistency?
- Are you using zero-hours to cover what’s really a permanent staffing need?
- Are there any long-term zero-hours staff whose rights have evolved?
A quick annual audit of your staffing arrangements helps you stay compliant and competitive in attracting good people.
8. Forgetting that flexibility goes both ways
Finally, remember that zero-hours staff aren’t obliged to accept every shift you offer. You can’t penalise them for working elsewhere or turning down work, exclusivity clauses are unlawful.
If you need guaranteed cover, you’ll need to offer guaranteed hours. Otherwise, embrace the two-way flexibility that these contracts are meant to provide.
In summary
Zero-hours contracts can be a valuable tool for small businesses, providing adaptability, cost control, and access to talent when demand fluctuates. But they’re not a shortcut or a substitute for good management.
To use them successfully:
- Be clear about employment status and obligations.
- Communicate openly and schedule fairly.
- Pay holiday correctly and keep solid records.
- Review arrangements regularly.
Handled well, zero-hours contracts give your business the flexibility it needs without damaging trust or compliance. Handled badly, they can quickly become more trouble than they’re worth.
If you need any further advice on zero-hours contracts, do get in touch.