Alternative working arrangements are on the increase as companies adapt to changing business needs. For businesses, staff requirements may fluctuate during the year and there may be no need for a regular workforce. For individuals, regular, fixed working arrangements may no longer be required. The UK Government has been examining the law as it applies to new working patterns, and there are expected to be new developments in 2014 in relation to zero-hours contracts, the use of employment intermediaries and flexible working.

Zero-Hours Contracts 

A zero-hours contract (ZHC) is a contract of employment under which an employee has no set hours, and is paid only in relation to the hours worked. The employer is not obliged to provide any work to the individual and the individual is free to refuse work when offered. This arrangement gives the employer the benefit of complete flexibility, and is prevalent in the hospitality and retail industry, where business levels can be unpredictable.

The Government has recently launched a consultation on ZHCs following months of controversy concerning the extent of their use and alleged abuse. There is currently no specific regulation of ZHCs in the UK and, unlike some other EU countries, such as Belgium, France and Spain, no restriction on the use of ZHCs.

The Government is focused on striking a fair balance between the flexibility provided by ZHCs and ensuring adequate protection for individuals, and is seeking to address two concerns in particular:

  • Exclusivity clauses (contractual restrictions that prevent individuals working for others even when no work is available under a ZHC): the consultation document acknowledges that only a small number of ZHC workers are prevented from working for another employer. It recognises that whilst exclusivity clauses may be justified in some cases (for example, where ZHC workers are entrusted with confidential information), in some circumstances, individuals are prevented from working for another employer, even if the current employer is offering no work.
  • Transparency: there is a lack of a clear understanding amongst both ZHC workers and employers about the nature of ZHCs, including employment status and entitlements. Employers may mistakenly believe that ZHC workers have no employment rights including unfair dismissal and statutory sick pay for example when, in reality, the essential elements of an employment relationship are present.

A ban on ZHCs is not an option being considered by the Government. The options under consideration include a ban on the use of exclusivity clauses in contracts that offer no guarantee of work, a Code of Practice for ZHCs, and the publication of model clauses.

Employers who use ZHCs will need to keep abreast of developments in this area and consider if they will need to amend any contractual terms, in particular exclusivity clauses.

Use of Employment Intermediaries 

There has been concern that some businesses are using employment intermediaries to disguise the employment of their workers as self employment to avoid paying employers’ National Insurance (NIC) and to reduce the costs associated with employment rights.

The Government intends to strengthen existing legislation to prevent false self-employment facilitated by employment intermediaries. A consultation exercise was launched on 10 December 2013 setting out proposals to tackle the level of avoidance from false self-employment.

The main proposal is to reduce the current requirement for ‘personal service’ in the sections of the Income Tax (Earnings and Pensions) Act 2003 that define when payments made to agency workers are to be taxable as employment income. Under the new test, if the worker personally provides or is personally involved in the provision of services to another, and if he or she is subject to supervision, direction or control as to the manner in which he or she carries out his or her duties, then the payment for his or her services will be taxed as employment income. The intermediary (i.e. the agency) will therefore need to deduct income tax and NIC. The intention is that the amended legislation will affect intermediary relationships involving employment businesses, agencies and/or personal service companies.

These proposed changes are intended to come into force on 6 April 2014.

The changes will mean that such workers become entitled to statutory sick pay and maternity pay, by virtue of NICs being made on their behalf. The consultation document also states: ‘in the majority of cases the worker will also gain the benefits of being an employee for employment rights purposes, although this will depend on them being within the case law tests set out by the courts’. No changes are proposed to employment legislation, and so it does not necessarily follow that cases on employment status will be decided any differently as a result. However, insofar as the Tribunals may take the tax position into account when deciding employment status questions, the change may have some effect.

Flexible Working 

The Government will extend the right to request flexible working to all employees from 6 April 2014. The right to request flexible working currently applies to parents of children under 17, of disabled children under 18, and to certain caregivers. Employers can only reject such requests on prescribed grounds.

On 13 November 2012, the Government published its response to Consultation on Modern Workplaces and confirmed its intention to implement the extension of the right to request for flexible working to all employees with 26 weeks’ continuous service, replace the statutory procedure for considering requests with a new duty on employers to act reasonably within a reasonable period and introduce a statutory code of practice and best practice guide. The new flexible working regime, included in the Children and Families Bill, is expected to come into force on 6 April 2014.

The Government confirmed that it will not create an exemption for micro businesses (those with fewer than 10 employees).

Employers of all sizes will need to review how to respond to requests for flexible working, once this right is extended to all employees with 26 weeks’ service. They will also need to check on internal procedures and make appropriate amendments to comply with the new Acas* code.

Summary 

A typical working arrangements often provide flexibility and a more informal relationship between the parties, with fewer obligations on either side. In light of the new developments in ZHCs, the use of employment intermediaries and flexible working, employers may need to review their existing contractual and tax arrangements to ensure compliance with the relevant guidance and legislation. The overall effect of the new developments will be to enhance employment protection for workers.

Employers should not be lulled into a false sense of security as, in some cases, atypical workers may have employment/worker rights and some may even become employees under law. To complicate matters, the employment status of an atypical worker can change over time, for example if their working arrangements develop a regular pattern or they can establish that there is an umbrella contract of employment. 

As a result of the extension of flexible working rights, employers will need to accept a presumption that many more employees will be working from home, part-time or according to non-standard arrangements.