With zero-hours contracts proving as divisive as ever, Keystone Law’s Michelle Last and Philippa Wood explain whether they have a place in the SME business.

The phrase “zero-hours contracts” conjures up images of slippery businessmen dripping in wealth earned at the expense of poor, defenceless mothers, students and older workers. And this reputation has not been earned through media hype alone. According to a report published by the Office for National Statistics, these are the very people who are most likely to be engaged on a zero-hours contract.

As an economy, we are just beginning to scratch the surface of the potential business benefits in utilising zero-hours contracts. For example, a small plumbing business might profit from extra resourcing to submit a pitch within an otherwise impossible time frame. And an independent shop might need extra staffing to deal with unexpected staff absences. Employers in the farming and tourism industry have successfully used a zero-hours contract model for decades.

Public interest in the model has, only recently, been sparked largely as recession-desperate corporates have sought to reap the benefits of flexible staffing in their own areas. Nevertheless, there are still sound reasons for employers to use zero-hours contracts, and indeed they are entitled to do so, regardless of the media and political frenzy that surrounds their use. The reality is that businesses can make good use of them to deal with unexpected hikes in work. And this is particularly the case when it comes to SMEs.

Put simply, zero-hours contracts work best when a business needs additional staffing to deal with peaks in the business, on the basis that the business is not obliged to offer work and the worker is not obliged to accept it. For this reason, over a fifth of all zero-hours contracts are in the accommodation and food industry. Why have a host of waitresses working in your beachside restaurant when the tourists wane during low season?

However, these types of contracts are not intended to be used as an alternative to employing someone where the business has an ongoing need for staffing. As Sports Direct has discovered, if a business has an ongoing need for regular employees, it should employ them or at least provide a guaranteed minimum number of hours. McDonald’s, the biggest user of zero-hours contracts, is now offering permanent contracts to thousands of UK zero-hours workers. Meanwhile, Labour has voted in the Welsh Assembly against its pledge to ban them. The defence is always that these controversial “no ties” agreements, which allow employers to contract staff when and for however long they want with no guarantee of work or statutory rights for workers, are not suitable for everyone but can still be useful in the modern, flexible workplace.

Interestingly, in the case of McDonald’s, the insecurity of not having guaranteed work was not the issue. Rather, workers complained they were struggling to get loans, mortgages and mobile phone contracts, and it has been reported that around 80% have asked to stay on zero-hours contracts. Generally, workers are happy with the flexibility as much as the contractor; it works both ways for any company that does not know, from one day to the next, what provisions they might need.

SMEs will already have a good bank of trustworthy contacts on whom to call if needed. And workers often find that they are undertaking more, not less, with zero-hours arrangements giving them the flexibility to do this.

Another benefit for the employer is that there are, arguably, fewer employment rights to worry about. While workers do profit from some employment rights, they do not have access to all. For example, unfair dismissal rights will rarely kick in for zero-hours workers. Having said that, if the company has the same individuals working on an increasingly regular basis, there is a risk that mutuality of obligation could develop, potentially giving the worker employment status. In turn, this obligates companies to give holiday pay, along with any benefits it offers to other employees.

If companies look at getting a better bank of people to rely on and still want to maintain the flexibility to take on staff purely when they need them, zero-hours contracts can work as they are intended and lessen the risk of mutuality of obligation evolving between one company and one worker and therefore make it less likely that the worker is an employee.

As always, the best way to do this and keep track of all other important issues at the same time is, as ever, to have good, solid terms and conditions, agreed from the outset.

Despite the controversy surrounding them, the use of zero-hours contracts is likely to grow across the board, as businesses of all shapes and sizes come to see the value in them and tap into the flexible work pool.