The government’s own analysis has put zero hours contract costs to businesses at between £350 million and £2.9 billion a year under Labour’s planned employment reforms, reigniting a sharp dispute between business groups and trade unions over who stands to gain.
The figures were published as part of a consultation into one of the central questions still unresolved in the legislation: how many hours a worker must regularly clock up before their employer is legally required to offer them a guaranteed contract.
What the zero hours contract costs analysis actually shows
The range in the estimates is wide, and deliberately so. The government’s own document explains that the eventual bill depends on where the hours threshold is set. If the new rules apply to anyone working 48 hours a week, as some unions have argued, the cost to employers rises steeply. The government has said its preference is for the threshold to fall somewhere between eight and 20 hours a week, which would push the overall figure well below the upper estimate.
At the middle of the government’s range, the net cost lands at around £1.1 billion. At the upper end, roughly £1.2 billion of that total would come from compensation businesses must pay workers for shifts cancelled at short notice. Officials also wrote that the reforms could deliver a £10 billion boost to the economy through improved wellbeing and productivity, which would reduce the net average cost to between £300 million and £1.4 billion.
The analysis acknowledged there were “potential trade-offs,” including higher administrative burdens and less flexibility for companies, and that the changes could make it “harder for employers to respond to changes in demand.” Officials added that the full range of benefits could not be captured in those figures because they are “not possible to monetise.”
How the reference period rules would work in practice
One of the most consequential details still to be finalised is the reference period: the block of time over which a worker’s regular hours would be measured to determine whether they qualify for a guaranteed contract. According to Paris Smith, the guaranteed hours would reflect the hours a qualifying worker regularly works over a reference period expected to be 12 weeks, though that has not yet been confirmed.
Osborne Clarke notes that options of 12, 26 or 52 weeks are all under consideration, with the precise regularity conditions to be set out in secondary regulations. The choice of period matters in practice: a longer window allows more averaging, potentially keeping more workers below the qualifying threshold; a shorter one captures those with volatile but frequent hours.
Skills Minister Baroness Jacqui Smith said the reforms would ensure workers are “fairly paid,” and told Sky News the government will “look very carefully” at how it brings in the changes. “I don’t think it’s fair for somebody to be on a contract where they literally don’t know whether or not they’re going to be working at all, and yet they’re bound by that contract,” she said.
Business groups and unions line up on opposite sides
The number of people on zero hours contracts hit a record high of 1.23 million last December, a rise of 91,000 on the year, according to official data. That scale means the hospitality and retail sectors, which rely heavily on flexible staffing, face the heaviest exposure to the changes.
Kate Shoesmith, director of policy at the British Chambers of Commerce, called the analysis “a further hammer blow” for struggling businesses. “We are already facing a youth unemployment crisis,” she said. “Now is not the time to make it even more costly for employers to hire.”
Helen Dickinson, chief executive of the British Retail Consortium, questioned whether the reforms would “actually deliver value for workers” given the burden on businesses, and warned that retailers face paying “hundreds of millions of pounds” to update payroll systems.
The Trades Union Congress pushed back, with a spokesperson arguing that most of the extra costs would only arise if employers continued cancelling shifts at the last minute: “The aim of this legislation is to stop this practice and give variable hours workers security and stability, so good employers have nothing to fear.” Charlotte Brumpton-Childs, GMB national secretary, called zero hours contracts “archaic” and said businesses were “of course going to grumble” about the policy.
The consultation on the hours threshold is now open, with the government’s stated preference for a range of eight to 20 hours a week setting the battleground for what comes next.
