Zero-hour contracts: how they work, key rights and disadvantages

Zero-hour contracts allow businesses to manage staffing needs efficiently while giving workers the option to accept or decline shifts. However, these contracts do not guarantee a set number of hours, leaving workers with unpredictable income and limited job security. Many also miss out on key benefits like holiday pay and sick pay.

Industries such as hospitality, retail, healthcare, and the gig economy commonly use these contracts to handle fluctuating demand. While businesses save costs by only paying for hours worked, workers may struggle with financial stability due to inconsistent schedules.

This guide explores how zero-hour contracts work, their advantages and disadvantages, key employment rights, and best practices for businesses. Understanding these contracts helps both employers and workers make informed decisions.

A quick guide to zero-hour contracts

A zero-hour contract is a type of employment contract where an employer is not required to provide a fixed number of working hours. Instead, work is offered based on demand. Workers may be available for shifts but are not obliged to accept them unless stated in their contract.

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How zero-hour contracts work and key legal considerations

A zero-hour contract is a type of employment contract where an employer is not required to provide a set number of working hours. Instead, work is offered as needed. Workers may be available for work but are not always obliged to accept shifts.

Industries that use zero-hour contracts

Many industries use zero-hour contracts, especially those with fluctuations in demand. These contracts help businesses respond quickly to staffing needs. They are common in:

• Hospitality: Restaurants, bars, and hotels hire zero-hours staff to cover busy periods.
• Retail: Stores adjust hours worked based on seasonal demand.
• Healthcare: Care facilities hire contract workers to manage changing patient needs.
• The gig economy: Delivery drivers and freelance workers operate on casual contracts with no guaranteed hours.

These contracts benefit businesses needing flexible staffing solutions but may leave workers without stable income or employment rights.

How zero-hour contracts differ from other employment types

Workers under a zero-hours contract have different rights compared to those in traditional contracts. Unlike full-time or part-time employees, they do not have set hours. Casual workers also lack set hours but often have more legal protections.

Employment TypeGuaranteed HoursEmployment StatusEntitlements (e.g. holiday pay, sick pay)Full-timeYesEmployeeYesPart-timeYes (fewer than 38 per week)EmployeeYesCasualNoEmployee or a workerLimited entitlementsZero-hour contractNoEmployee or workerLimited and varies by contract

Workers should carefully review their employment contract to understand their rights and obligations.

Advantages and disadvantages of zero-hour contracts

A zero-hour contract offers flexibility but also presents risks. Employers and workers must weigh the advantages and disadvantages before agreeing to this type of employment contract.

Business benefits

Employers may choose zero-hour contracts to:

• Reduce costs: Businesses only pay for hours worked, avoiding unnecessary wage expenses.
• Improve flexibility: They can adjust staff levels to match fluctuations in demand.
• Avoid long-term commitments: Businesses can hire workers when needed without permanent obligations.
• Respond quickly: Short-term hiring helps with seasonal work and unexpected labour shortages.

Worker benefits

Many workers on zero-hour contracts enjoy:

• Work-life balance: They can accept shifts that fit their schedule.
• Multiple income streams: They can take on other jobs to increase earnings.
• Experience and networking: Working in different roles and industries builds skills and contacts.
• Short notice opportunities: Workers can take up last-minute shifts.

Challenges for businesses

Despite flexibility, employers must consider risks such as:

• Lack of worker commitment: Without job security, workers may not stay loyal.
• Workforce planning issues: Relying on zero-hours staff makes scheduling harder.
• Legal risks: Misclassifying workers can lead to breaches of employment law.

Challenges for workers

People on zero-hours contracts face:

• Unstable income: Fluctuations in demand make it hard to predict earnings, leading to financial stress.
• Limited career growth: Employers may prioritise full-time staff for promotions and training.
• Lack of entitlements: Many zero-hours contract workers miss out on holiday pay, sick pay, and statutory rights.
• Mental health impact: Uncertainty over work availability can lead to anxiety, stress, and lower job satisfaction. Studies show workers on zero-hours contracts are more likely to report poor mental health compared to those in stable jobs.

Worker rights and entitlements under a zero-hour contract

Workers on zero-hour contracts in Australia have rights, but these depend on their employment status. A worker may be classified as an employee or a contractor, which affects their entitlements under Australian employment law.

Key entitlements for zero-hours workers

Workers under a zero-hour contract may receive:

• Holiday pay and annual leave: Casual workers are not entitled to paid annual leave, but they often receive a casual loading to compensate for this.
• Sick pay: Casual workers do not get paid sick leave, but they may access unpaid leave in certain circumstances.
• Workplace protections: Workers must not face discrimination, and employees who meet specific criteria may be protected from unfair dismissal.
• Minimum wage compliance: Employers must ensure workers are paid at least the minimum wage as set by the Fair Work Commission.

Workers should review their employment contract to understand their rights. If unsure, they should seek legal advice. Employers must comply with Fair Work laws to ensure workers are treated fairly.

Best practices for employers using zero-hour contracts

Employers must follow good practice when hiring workers on zero-hour contracts. Clear communication, fair treatment, and legal compliance help build trust and reduce risks. Businesses that treat workers well attract skilled staff and maintain a strong reputation.

Managing zero-hour workers fairly

Employers should:

• Clearly explain employment status, pay rates, and shift expectations.
• Inform workers of their entitlements, including holiday pay and rest breaks.
• Ensure workers are also free to take other jobs unless an exclusivity clause applies.
• Give as much notice as possible when offering or cancelling shifts.
• Avoid penalising workers who decline shifts.

Frequently asked questions

What is the difference between a zero hour contract and full-time work?

A zero hour contract does not guarantee shifts, while full-time work provides consistent hours and income. Full-time employees working at least 30 hours per week receive job security, benefits and legal protections. Contract workers under zero hour agreements may not have the same entitlements as full-time staff.

What are the disadvantages of zero-hours contracts for workers?

The disadvantages of zero-hours contracts include unstable income, lack of career progression and limited access to employment rights. Workers seeking full-time employment may find it hard to secure permanent roles. CIPD research highlights that workers under these contracts often experience lower job security and reduced benefits.

Can an employer change a zero-hours staff member’s working arrangement?

Yes, employers can offer or withdraw shifts based on business needs. However, they must follow fair work laws. The Employment Rights Act 1996 protects workers from unfair treatment. Employers should ensure their employment relationship with staff is clear and legally sound.

Are agency workers covered under a zero-hours contract?

Yes, agency workers can be hired under zero-hours contracts. However, their rights may differ from direct employees. The Employment Rights Bill, which received royal assent, aims to strengthen worker protections, especially for agency workers and young workers.

Do zero-hours workers have protections under employment law?

Yes, but protections depend on the worker’s employment status. In Australia, casual workers—who often work under zero-hour contracts—have fewer rights than permanent employees. While casuals do not receive paid leave or redundancy protections, they are entitled to a casual loading to compensate for these gaps.

What rights do young workers have under a zero-hours contract?

Young workers have the same basic rights as other workers. However, employers must follow legal age restrictions and ensure safe working conditions. MP Julian has raised concerns about the impact of these contracts on young workers’ job stability and career growth.

Can an employer require an on-call worker to accept shifts?

No, unless the contract specifically states that workers must accept shifts. Mutual agreement is key to fair working conditions. Workers should review their contracts carefully before agreeing to any commencement of work.

Making informed choices on zero-hour contracts

A zero-hour contract can offer flexibility but also presents risks. Workers must understand their employment rights and entitlements, including holiday pay, sick pay, and minimum wage protections. Employers must follow employment law and ensure contracts are clear, fair, and legally compliant.

Businesses benefit from zero-hours contracts when they use them ethically. Fair scheduling, open communication, and access to worker protections help maintain trust. Poor practices can lead to legal issues and damage an organisation’s reputation.

Employers should seek legal advice to ensure compliance with workplace laws. Using trusted contract solutions like Business Kitz helps businesses manage agreements, protect worker rights, and avoid disputes. A fair and transparent approach benefits both employers and workers in the long run.