Zero hours contracts see workers earn 40 per cent less finds new report

A new study shows that people employed on zero-hours contracts – which do not guarantee any hours of work – are paid less than those working set hours.

The study shows that zero-hours workers earn on average £9 an hour (gross) compared to £15 an hour for those with more conventional contracts. Among graduates, the difference is even starker – with those on zero hours earning an average of £10 an hour, compared to £20 for those with set hours. However the difference disappears at lower skill levels (people qualified to GCSE).

Workplaces that use zero-hours contracts have a higher proportion of low paid staff than those which do not.  And workers on zero-hours contracts work fewer hours on average – 21 hours a week compared to 31 hours for more conventional contracts – which suggests the growing use of zero-hours may also be contributing to rising rates of under-employment noted since the start of the recession in 2008. More people on zero-hours contracts would like to work more hours or are looking for another job (18 per cent) than those not on zero-hours (7 per cent).

The rise of zero-hours contracts may therefor explain why the UK has combined relatively high employment levels with a severe squeeze on wages in recent years suggests the report, A Matter of Time. It combines new analysis of official data on zero-hours contracts with a series of interviews with employees who work under them. It gives the most detailed picture yet of how and where they are being used in the labour market.

It reveals that they are most common among younger workers – with almost four in 10 (37 per cent) of people on zero-hours aged between 16 and 24. Official figures show that a total of 208,000 workers were on zero-hours contracts in 2012 – up from 134,000 in 2006. However the Resolution Foundation report suggests this is likely to be a considerable under-estimate because many people do not realise that their contracts is zero-hours.

The report shows that zero-hours contracts are most likely to be used in the health and social care sector and in hospitality, which account for 20 per cent and 19 per cent of them respectively. Administration accounts for 12 per cent of zero-hours contracts, followed by retail (11 per cent) and arts, entertainment and leisure (8 per cent).

The report’s authors spoke to some employees, a minority, who value the freedom and flexibility that the contracts offer because they allow them to fit chores and leisure time around their work. However a majority feel this “freedom” is more illusory than real. This was either because they feel they need to accept all the hours offered them to earn a reasonable amount of pay or because they fear the overall hours offered to them will be drastically cut if they decline to work particular shifts. As a result, many say the unpredictability of zero hours contracts can interrupt family life and make budgeting difficult.

The report’s authors also found evidence that where the threat of “zeroing-down” a worker’s hours  – reducing them to few or none – is used as a management tool, it makes staff more fearful of complaining about unfair treatment or employer abuses.  Employers can “zero-down” hours as an alternative to making staff redundant, which costs money.

The report also investigates the reasons for the growing popularity of zero-hours contracts with employers. It suggests that, in a time of recession, they have found  it easier to adjust to fluctuating demand with a pool of flexible labour and that zero-hours contracts allow them to better manage risk. A move to zero-hours can also reduce the initial costs of recruiting and training staff. Some firms also appear to use the contracts to avoid giving workers the full status of employee with the costs and obligations that entails.

Matthew Pennycook, senior analyst at the Resolution Foundation and joint author of the report, said:  “For many workers, zero hours contracts mean a life of permanent uncertainty.  They leave staff fearful of turning down work, unable to plan and budget for life away from work and prone to having their employment rights undermined.  Zero –hours contracts also seem to have a negative effect on staff morale, teamwork and productivity in a way that leads to a poorer quality service. “

Vidhya Alakeson, deputy chief executive of the Resolution Foundation and joint author of the report, said: “The rise in zero-hours contracts is a serious concern – as signalled by the government’s review of them.  We’re unlikely to see an outright ban on zero-hours but the case for reforming and regulating their use now seems overwhelming. For example, we could insist that all job adverts offering zero-hours contracts make that entirely clear. At the moment the benefits they may bring for employers come at too high a price for those employed on them.”

The study is an interim report from a larger investigation into precarious employment being carried out by the Resolution Foundation and funded by Unbound Philanthropy. This will be published in the autumn.
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A Matter of Time: the rise of zero-hours contracts by Matthew Pennycook, Giselle Cory and Vidhya Alakeson is published by the Resolution Foundation.