The Complete Guide to Zero Hours Contracts in the UK: Everything Employers and Workers Need to Know

Zero hours contracts have become a significant part of the UK employment landscape, offering flexibility for both businesses and workers. But with this flexibility comes complexity—particularly around legal compliance, tax obligations, and worker rights. Whether you’re an employer considering implementing zero hours contracts or a worker trying to understand your rights, this comprehensive guide answers every question you need to know.

Key Takeaway

Quick Answer: A zero hours contract is a legal UK employment arrangement where the employer doesn’t guarantee any minimum working hours, and the worker isn’t obliged to accept work when offered. Workers retain key employment rights including holiday pay, minimum wage, and protection from discrimination, while businesses gain staffing flexibility.

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Understanding Zero Hours Contracts: The Foundation

Is Zero Hours Contract Legal for UK Employees?

Absolutely. Zero hours contracts are completely legal under UK employment law, governed primarily by the Employment Rights Act 1996 and subsequent legislation. The UK government recognises these arrangements as legitimate employment contracts, though they come with specific protections for workers.

Key legal requirements include:

  • Workers must receive the National Minimum Wage or National Living Wage for all hours worked
  • Exclusivity clauses were banned in 2015—workers can work for multiple employers
  • Workers cannot be penalised for refusing shifts
  • All standard employment protections apply (discrimination, health and safety, etc.)

The legality comes with responsibilities. Employers must provide written terms within two months of employment starting, outline how work will be offered, and ensure workers receive their entitled rights.

Section Summary: Zero hours contracts are fully legal in the UK under Employment Rights Act 1996. Workers must receive National Minimum Wage, cannot be forced to accept shifts, and retain all standard employment protections including discrimination and health and safety laws.

Are Zero Hours Contracts Covered by UK Employment Law?

Yes, and this is crucial to understand. While zero hours workers often aren’t classified as “employees” with full employment rights, they are typically “workers” under UK law—a classification that provides substantial protections as outlined in the Gov.uk employment status guidance.

Zero hours workers are entitled to:

  • 5.6 weeks of paid annual leave (28 days for full-time equivalent) under Working Time Regulations 1998
  • National Minimum Wage/National Living Wage
  • Rest breaks as per Working Time Regulations
  • Protection from unlawful deduction of wages
  • Protection from discrimination under Equality Act 2010
  • Whistleblowing protection
  • Health and safety protections

What they may NOT get (unless classified as employees):

  • Statutory redundancy pay
  • Minimum notice periods
  • Right to request flexible working
  • Protection from unfair dismissal (unless for automatic unfair reasons)

The distinction matters significantly for both compliance and planning purposes.

Section Summary: Zero hours workers are classified as “workers” (not employees) under UK law, giving them substantial rights including 5.6 weeks paid holiday, minimum wage protection, rest breaks, and discrimination protection. They lack some employee rights like redundancy pay and protection from unfair dismissal.

Tax, VAT, and Financial Implications

Do Zero Hours Contracts Count for Tax Purposes UK?

Yes, absolutely. Zero hours workers are subject to the same tax obligations as any other employed or self-employed individual, depending on their classification as confirmed by HMRC employment status guidance.

For employers:

  • You must operate PAYE (Pay As You Earn) if the worker is employed
  • Deduct Income Tax and National Insurance contributions from wages
  • Issue P60s at year-end and P45s when employment ends
  • Report to HMRC through Real Time Information (RTI)

For workers:

  • Income from zero hours contracts is taxable
  • You’re entitled to the same personal allowance (£12,570 for 2024/25)
  • National Insurance contributions apply when earnings exceed £242 per week
  • Multiple jobs may push you into higher tax brackets—track total income carefully

Critical consideration: If you work multiple zero hours contracts simultaneously, each employer will apply your tax code independently. This can sometimes mean underpaying tax initially, with adjustments made later by HMRC.

Section Summary: Zero hours workers pay full Income Tax and National Insurance through PAYE. Employers must deduct tax, issue P60s/P45s, and report to HMRC via RTI. Workers with multiple zero hours jobs should monitor total income to avoid underpaying tax across all employment.

Is Zero Hours Contract Tax Deductible for Businesses?

Yes, payments made under zero hours contracts are legitimate business expenses and fully tax-deductible for UK businesses, provided they meet HMRC’s “wholly and exclusively” test for business expenses.

What you can deduct:

  • Gross wages paid to zero hours workers
  • Employer National Insurance contributions (13.8% on earnings above £175/week)
  • Pension contributions (if applicable)
  • Recruitment costs for zero hours staff
  • Training provided to zero hours workers

Documentation required:

  • Timesheets or work records
  • Payment records
  • Contracts or engagement letters
  • Evidence of work performed

This makes zero hours contracts financially attractive for businesses managing variable demand, as you only pay for hours actually worked while still claiming full tax relief.

Section Summary: Zero hours wages are 100% tax-deductible business expenses including gross wages, employer NI contributions (13.8%), pensions, recruitment, and training costs. Maintain timesheets, payment records, contracts, and work evidence for HMRC compliance.

Are Zero Hours Contracts Subject to VAT?

This is a nuanced question. The employment relationship itself isn’t subject to VAT—you don’t charge VAT on wages paid to zero hours workers who are your employees, as confirmed by HMRC VAT guidance.

However:

If the zero hours worker is genuinely self-employed:

  • They may need to register for VAT if turnover exceeds £90,000 (2024/25 threshold)
  • They would invoice you including VAT if registered
  • You could reclaim this VAT as input tax (if you’re VAT registered)

If the worker is employed (most common for zero hours):

  • No VAT applies to the employment relationship
  • Wages are outside the scope of VAT
  • You cannot reclaim VAT on wages

The IR35 complication: If a worker provides services through their own limited company, IR35 rules determine whether they’re truly self-employed or a “disguised employee.” If caught by IR35, the relationship is treated as employment for tax purposes.

Section Summary: Employment relationships have no VAT—wages are outside VAT scope. Self-employed workers through limited companies may charge VAT if turnover exceeds £90,000. IR35 rules determine if arrangements are genuine self-employment or disguised employment for tax purposes.

How Does IR35 Affect Zero Hours Contract?

IR35 (off-payroll working rules) primarily affects workers who provide services through their own limited company or personal service company (PSC). Most zero hours contracts fall outside IR35 because the worker is directly employed by the business.

When IR35 becomes relevant:

  • Worker operates through their own limited company
  • You engage the company, not the individual directly
  • The working arrangement resembles employment

If IR35 applies (worker deemed an employee for tax):

  • Medium/large organisations must assess IR35 status
  • You (the client) may become responsible for deducting tax and NI
  • The worker’s company loses tax advantages of incorporation

How to avoid IR35 complications with zero hours contracts:

  • Engage individuals directly rather than through PSCs
  • Use standard zero hours employment contracts
  • Ensure genuine flexibility in the arrangement
  • Avoid controlling how/when/where work is performed

Section Summary: IR35 mainly affects workers operating through limited companies. Most zero hours contracts avoid IR35 by directly employing individuals. Medium/large organizations must assess IR35 status if engaging personal service companies. Maintain genuine flexibility and avoid direct control to stay compliant.

Insurance, Liability, and Risk Management

Does Business Insurance Cover Zero Hours Contract?

Generally yes, but you must ensure your policy explicitly covers zero hours workers. Many standard policies do, but exclusions or limitations can exist.

Essential insurance coverage needed:

1. Employer’s Liability Insurance (MANDATORY)

  • Legal requirement under Employers’ Liability (Compulsory Insurance) Act 1969 if you employ anyone, including zero hours workers
  • Must provide minimum £5 million cover (most policies offer £10 million)
  • Covers claims for injury or illness caused by work
  • Display your certificate where workers can see it
  • Fines up to £2,500 per day for non-compliance

2. Public Liability Insurance (HIGHLY RECOMMENDED)

  • Covers claims from third parties (customers, public)
  • Protects if zero hours worker causes injury/damage to others
  • Typical cover: £1-5 million
  • Essential for client-facing roles

3. Professional Indemnity Insurance (SITUATION-DEPENDENT)

  • Needed if workers provide advice or professional services
  • Covers claims arising from errors, negligence, or poor advice
  • Required in many professional sectors

Critical policy checks:

  • Confirm zero hours workers are covered (some policies exclude casual workers)
  • Declare accurate worker numbers (including zero hours staff)
  • Update your insurer when hiring zero hours workers
  • Understand any restrictions on work types or locations

Section Summary: Employer’s Liability Insurance is legally mandatory (£5 million minimum) for all zero hours workers. Public Liability Insurance (£1-5 million) highly recommended for client-facing roles. Professional Indemnity needed for advisory services. Verify policies explicitly cover zero hours workers and update insurers when hiring.

Who’s Liable If Zero Hours Contract Causes Injury?

Liability for injuries involving zero hours workers follows standard employer liability principles under the Health and Safety at Work Act 1974, but with some complexities.

If a zero hours worker is injured:

Employer’s primary responsibilities:

  • Duty of care under Health and Safety at Work Act 1974
  • Must provide safe working environment
  • Required to have Employer’s Liability Insurance
  • Must conduct risk assessments
  • Provide necessary training and PPE

You’re liable if:

  • Injury resulted from unsafe conditions you created/permitted
  • Inadequate training or supervision provided
  • Failure to provide appropriate equipment
  • Breach of health and safety regulations

If a zero hours worker injures someone else:

Vicarious liability applies:

  • Employers can be liable for worker actions during employment
  • Must prove worker was acting “in the course of employment”
  • Your Public Liability Insurance should cover this
  • Even if worker was negligent, you may still be liable

Section Summary: Employers liable for zero hours worker injuries if unsafe conditions, inadequate training, or regulatory breaches occur. Must maintain safe environment, conduct risk assessments, and provide PPE. Vicarious liability applies if workers injure third parties during employment. Employer’s Liability and Public Liability insurance essential.

GDPR and Data Protection Compliance

Is Zero Hours Contract GDPR Compliant?

Zero hours contracts themselves are GDPR compliant, but how you manage worker data determines actual compliance. The contract type doesn’t violate UK GDPR; data handling practices might.

GDPR applies fully to zero hours workers:

  • They’re data subjects with full rights
  • You’re the data controller processing their personal data
  • Standard data protection principles apply
  • No reduced requirements because of contract type

Key GDPR requirements:

1. Lawful Basis for Processing

  • Usually “contract” or “legal obligation”
  • Document your lawful basis for each data type

2. Data Minimisation

  • Only collect what you genuinely need
  • Don’t ask for information “just in case”

3. Transparency

  • Provide privacy notice before collecting data
  • Explain what data you collect and why

4. Security

  • Appropriate technical and organisational measures
  • Encrypted storage for sensitive data
  • Access controls limiting who sees what

5. Rights Compliance

  • Respond to subject access requests within one month
  • Delete data when no longer needed
  • Correct inaccurate data promptly

Section Summary: UK GDPR fully applies to zero hours workers as data subjects. Establish lawful basis (contract/legal obligation), minimize data collection, provide transparency through privacy notices, implement security measures including encryption and access controls, and respond to subject access requests within one month.

How to Handle Data Breaches with Zero Hours Contract?

Data breaches involving zero hours worker data follow the same protocols as any employee data breach, with mandatory ICO reporting requirements.

Immediate response steps:

1. Contain the Breach (within hours)

  • Stop ongoing breach if possible
  • Secure affected systems
  • Revoke compromised access credentials

2. Assess the Breach (within 24 hours)

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  • What data was affected?
  • How many workers impacted?
  • What’s the risk to affected individuals?

3. Document Everything

  • Create incident log immediately
  • Record timeline of events
  • Keep all evidence

Reporting requirements:

To the ICO (if meets threshold):

  • 72-hour deadline from becoming aware of breach
  • Required if breach poses risk to workers’ rights and freedoms
  • Use ICO’s online reporting tool

To Affected Workers:

  • Required if breach poses “high risk” to their rights
  • Must be “without undue delay”
  • Explain breach in clear, plain language

Section Summary: Data breach response requires immediate containment (hours), assessment (24 hours), and documentation. Report to ICO within 72 hours if breach poses risk to rights and freedoms. Notify affected workers without undue delay if high risk. Use ICO’s online reporting tool for mandatory notifications.

Employment Rights and Worker Protections

Do Zero Hours Contract Workers Get Employment Rights?

Yes, but the extent depends on whether they’re classified as “workers” or “employees”—most zero hours contractors are “workers” with substantial but not complete rights as defined by ACAS employment status guidance.

Universal rights for zero hours workers:

Pay and Hours:

  • National Minimum Wage/National Living Wage
  • Holiday pay (5.6 weeks annually, pro-rata)
  • Rest breaks (20 minutes if working over 6 hours)
  • Protection from unlawful wage deductions

Discrimination Protection:

  • Equality Act 2010 applies fully
  • Protection from discrimination based on protected characteristics
  • Right to equal treatment regardless of contract type

Health and Safety:

  • Safe working environment
  • Appropriate training and equipment
  • Protection under Health and Safety at Work Act 1974

Section Summary: Zero hours workers classified as “workers” receive National Minimum Wage, 5.6 weeks holiday pay pro-rata, 20-minute rest breaks after 6 hours, protection from wage deductions, full Equality Act 2010 discrimination protection, and complete health and safety protections under 1974 Act.

Do Zero Hours Contract Workers Get Holiday Pay?

Yes, absolutely. This is one of the most important and protected rights—all zero hours workers are entitled to paid holiday under the Working Time Regulations 1998.

Holiday entitlement:

  • 5.6 weeks (28 days) per year for full-time equivalent
  • Pro-rata for part-time or irregular hours
  • Begins accruing from first day of employment

Calculating holiday for zero hours workers:

Accrual method (recommended):

  • Worker accrues 12.07% of hours worked as holiday
  • Calculation: 5.6 weeks ÷ 46.4 weeks worked = 12.07%
  • If worker works 100 hours, they accrue 12.07 hours holiday
  • Pay holiday at average hourly rate

Example:

  • Worker does 15 hours one week at £12/hour
  • Holiday accrued: 15 × 12.07% = 1.81 hours
  • Holiday pay for those hours: 1.81 × £12 = £21.72

Section Summary: Zero hours workers entitled to 5.6 weeks (28 days) paid holiday annually pro-rata under Working Time Regulations 1998. Calculate using accrual method: 12.07% of hours worked equals holiday hours (5.6 weeks ÷ 46.4 weeks = 12.07%). Holiday accrues from day one of employment.

Health, Safety, and Risk Assessment

What Are the Health and Safety Requirements for Zero Hours Contract?

Zero hours workers receive identical health and safety protections as any employee under the Health and Safety at Work Act 1974—the contract type makes no difference to your legal obligations.

Core legal duties (Health and Safety at Work Act 1974):

Employer’s absolute duties:

These apply equally to:

  • Full-time employees
  • Part-time staff
  • Zero hours workers
  • Agency workers
  • Contractors on your premises

Section Summary: Health and Safety at Work Act 1974 applies equally to zero hours workers. Employers must provide safe workplace, safe equipment, necessary training/supervision, conduct risk assessments, maintain safe access/egress, and provide adequate welfare facilities. Contract type irrelevant to health and safety obligations.

Does Zero Hours Contract Require Risk Assessment?

Yes, absolutely. Risk assessment is a legal requirement under the Management of Health and Safety at Work Regulations 1999, regardless of contract type.

5-step approach:

1. Identify hazards

  • Walk through workplace
  • Review past incidents
  • Consult workers

2. Identify who might be harmed

  • Zero hours workers specifically
  • Other employees
  • Visitors and public

3. Evaluate risks and implement controls

  • Likelihood × Severity = Risk level
  • Apply hierarchy of controls

4. Record findings

  • Document hazards identified
  • Record who’s at risk
  • Detail control measures

5. Review and update

  • After incidents/near-misses
  • When work activities change
  • Periodically (at least annually)

Section Summary: Risk assessment legally required under Management of Health and Safety at Work Regulations 1999 for all zero hours workers. Follow 5-step HSE approach: identify hazards, identify who might be harmed, evaluate risks/implement controls, record findings, and review/update after incidents or annually minimum.

What Happens When Things Go Wrong

What Happens If Zero Hours Contract Provider Goes Bankrupt?

If your business employs zero hours workers and faces insolvency, specific protections and procedures apply to ensure workers receive some of their owed payments through the Redundancy Payments Service (RPS).

Redundancy Payments Service (RPS):

Government safety net for workers:

What RPS covers:

  • Arrears of pay (up to 8 weeks, max £719/week = £5,752)
  • Holiday pay owed (up to 6 weeks, max £719/week = £4,314)
  • Notice pay (statutory minimum only)

What workers should do:

  1. Document everything (timesheets, payslips, contracts)
  2. Calculate what’s owed
  3. Contact the appointed administrator
  4. Register with RPS through Insolvency Practitioner
  5. Seek alternative employment

Section Summary: If employer becomes insolvent, Redundancy Payments Service provides government safety net covering: arrears of pay (up to 8 weeks, max £719/week), holiday pay owed (up to 6 weeks), and statutory notice pay. Workers must document everything, calculate amounts owed, and register with RPS through Insolvency Practitioner.

Post-Brexit Changes

What Happens to Zero Hours Contract After Brexit?

Brexit has introduced changes to employment law, though zero hours contracts themselves remain largely unaffected according to UK visa and immigration guidance.

What HASN’T changed:

  • Zero hours contracts are still legal
  • Worker rights under domestic UK law unchanged
  • National Minimum Wage requirements unchanged
  • Holiday pay entitlements unchanged
  • Health and safety protections unchanged

What HAS changed:

EU worker mobility:

  • EU nationals may need settled/pre-settled status
  • New arrivals after January 1, 2021 subject to points-based immigration system
  • Right to work checks more complex

What employers should do:

  • Verify all workers’ right to work before employment
  • Check settled status for EU nationals
  • Keep copies of right to work documents
  • Monitor legislative changes

Section Summary: Post-Brexit, zero hours contracts remain legal with unchanged worker rights, minimum wage, holiday pay, and health and safety protections. Main change: EU nationals may need settled/pre-settled status, and post-January 1, 2021 arrivals face points-based immigration system. Employers must verify right to work for all workers.

Frequently Asked Questions About Zero Hours Contracts

Can employers force workers to accept shifts on zero hours contracts?

No. Workers cannot be forced to accept shifts and cannot be penalised for refusing work. Exclusivity clauses were banned in 2015, allowing workers to work for multiple employers simultaneously.

Do zero hours workers pay National Insurance?

Yes, if earnings exceed £242 per week. Employers deduct National Insurance contributions through PAYE along with Income Tax. Workers earning below the threshold don’t pay NI but still accrue qualifying years for State Pension.

Can zero hours workers claim Universal Credit?

Yes. Zero hours workers can claim Universal Credit when not working or when earnings are insufficient. Universal Credit adjusts monthly based on actual hours worked and income received, making it suitable for variable zero hours income.

Are zero hours contracts suitable for students?

Yes, zero hours contracts work well for students needing flexible work around studies. Students receive all worker rights including holiday pay (12.07% of hours worked), National Minimum Wage, and can refuse shifts during exam periods without penalty.

Do zero hours workers get sick pay?

Only if they qualify as “employees” rather than “workers.” Most zero hours workers don’t receive Statutory Sick Pay because they’re classified as workers. However, employers can choose to provide contractual sick pay voluntarily.

Can zero hours workers get mortgages?

Yes, but it’s more challenging. Lenders typically require 12-24 months of consistent income history. Workers should maintain detailed records of all earnings, timesheets, and payslips. Some specialist lenders cater specifically to zero hours workers.

What notice period applies to zero hours contracts?

No statutory minimum notice period exists for workers (only employees). However, contracts often specify notice periods (commonly 1-4 weeks). Either party can typically end the relationship immediately unless contractual terms state otherwise.

Can zero hours workers join trade unions?

Yes, absolutely. Zero hours workers have full rights to join trade unions under Trade Union and Labour Relations (Consolidation) Act 1992. Employers cannot discriminate against workers for union membership or activities.

Do zero hours contracts affect pension entitlement?

Workers earning over £10,000 annually (£192/week) must be automatically enrolled in workplace pension schemes. Zero hours workers meeting earnings thresholds receive identical pension auto-enrolment rights including minimum 8% contributions (5% employer, 3% employee).

Can employers change shift times at short notice?

It depends on contractual terms. If shifts are already accepted, employers should provide reasonable notice for changes. Workers can refuse changed shifts. Best practice: establish clear notice periods in contracts (commonly 48 hours minimum).

Conclusion

Zero hours contracts are a legitimate and legal way of working when structured correctly and operated fairly. Success requires:

  • Mutual respect between employers and workers
  • Clear communication about expectations
  • Proper documentation of hours, pay, and agreements
  • Legal compliance with all employment, tax, and safety laws
  • Regular review to ensure arrangements remain appropriate

For Employers:

  • Zero hours workers have substantial legal protections
  • Holiday pay, minimum wage, and health and safety obligations apply fully
  • All wages and associated costs are tax-deductible
  • Proper documentation prevents disputes

For Workers:

  • You’re entitled to holiday pay (12.07% of hours worked)
  • National Minimum Wage applies to every hour worked
  • You cannot be forced to accept shifts
  • You can work for multiple employers
  • Keep meticulous records of hours and pay

Whether you’re an employer leveraging workforce flexibility or a worker valuing schedule autonomy, understanding your rights and responsibilities ensures zero hours contracts work effectively for everyone involved.

Need help with zero hours contracts? Download our complete resource pack with templates, calculators, and compliance checklists to ensure you’re fully compliant and protected.

This guide reflects UK law as of September 2025. Always verify current requirements with Gov.uk, ACAS, or professional advisors.

 

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