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Ian Brinkley
Economic Advisor
Ian Brinkley

Zero hours contracts - new figures and a new approach

Authors: Ian Brinkley Ian Brinkley

14 March 2014

The official date for responses to the government’s consultation on zero hours contracts closed on the 13th March (yesterday) – and in line with other organisations, TWF made a submission which recommended a code of conduct.  But by coincidence, the controversy about zero hour contracts has been reignited by the release of new ONS estimates on March 10th.

The new estimates confirm what we and others have suspected – that the previous figures had severely under-estimated the level of zero hour working. The new estimates for 2013 show around 583,000 on zero hour contracts compared with just 250,000 in 2012. However, the question asked in the two surveys was the same – so what exactly changed to power such an explosive growth?

It is very rare to see such big jumps in labour market statistics – and when they are, it’s usually linked to changes in legislation or major co-ordinated changes in employment practice across (often) big public sector organisations such as the NHS or one-off events. None of these seems true in 2013. Indeed, we might have expected high levels of adverse publicity and the threat of more direct interventions in their use to dampen enthusiasm among employers for greater use of zero hours.

Much more likely is that some of the increase can be attributed to people becoming aware that they might be on a zero hour contract as a result of the publicity, as suggested by the ONS. We originally thought this might be one reason why there was an under-estimate and the latest figures support that view.

There may also have been a further increase in zero hour contracts as part of the steady increase since the mid 2000s. If true, this would suggest it is a structural shift that will not go away despite falling unemployment and stronger job generation. However, the ONS has no way of distinguishing between a rise due to better reporting and a rise due to more actual zero hours jobs.

A quick and very preliminary analysis of the new figures suggests the broad picture we have of zero hours contracts has not greatly changed – with the possible exception of occupational distribution. This is reassuring, as it suggests that previous under-reporting has not given us a skewed view.

In 2013 just over 60 per cent of respondents on zero hour contracts said they were permanent (44 per cent said they had lasted more than 2 years); just under 20 per cent were held by students; and 36 per cent were under 25. One change is that only 23 per cent of those on zero hours contracts said they were in the top three occupations (managers, professionals, associate  technical and professional) in 2013 compared with over 40 per cent in 2012. This might suggest it is less skilled jobs in which under-reporting has been most prevalent.  But answers to this question have been erratic in the past and this is something we need to probe further, to make sure we are comparing like with like. 

About 23 per cent said they where looking for another job, although the question also includes some people who would like a second job. Zero hours are sometimes conflated with under-employment, but only 26 per cent of zero hours workers said they wanted more hours. However, this share is still much higher than for other employees, where just 10 per cent said they wanted more hours.

Zero hours is disproportionately concentrated in the private sector – 86 per cent of all zero hours contracts – with above average concentrations in hospitality, health and social care, business support services, and the arts, creative, and leisure services. Although some attention has been given to retailing, the incidence of zero hours across the whole wholesale and retail services sector is actually below the national average.

The figures do not change our view on how the government ought to approach zero hours. The strategic approach ought to be to minimise the use of involuntary zero hours contracts, where the only reason people have taken them is because of no regular work being available.  They should only be used where there is a pressing business need and no alternative arrangement can deliver the result.

We do not favour legislation to ban or restrict their use, as this would deny the opportunity for many people who do find this sort of contract offers useful flexibilities. We also expect it could be evaded by the more exploitative employers. We are agnostic on the banning of exclusivity clauses, as the evidence base is too weak to provide clear guidance. However, a code of practice on fair use could be extended to exclusivity across the labour market and to other forms of casual employment. There is a very strong case to make clear that employees on zero hours contracts are not obliged to accept work if it is offered and should not be penalised if they do turn the work down.

We would put more effort in developing codes of practice at both national and sectoral level. There will be some general advice that cuts across all sectors, but the incidence, drivers, and context is very different when looking at for example, the NHS, social care, higher and further education, and retailing and hospitality. Developing more detailed guidance in all these areas would be helpful.

The consultation ignores some important levers that government has through public procurement – the most obvious is in social care where there is some evidence that changes in commissioning practice have driven up the use of zero hours contracts. But in addition, the inspection regime in care is now asking the question whether the use of zero hours poses a risk to the quality of care being delivered.  The answer in most cases may well be no, but the linkage to service quality is an important one that could be applied elsewhere.

The ONS has made significant improvements, which should be welcomed. But zero hours and the full extent of the contingent labour market of which they are part have still proved elusive to pin down. We would favour a more in-depth statistical look at regular intervals to help policy makers get a better grip, including asking more questions a round this topic in existing surveys. In the meantime, we will be doing more work over the coming months to try and get a better picture of insecurity at work in Britain.