Zero-Hours Contract Reforms Could Cost UK Firms Up to £2.9 Billion Annually

The ruling Labour Party government in the United Kingdom has announced that its planned new employment rights regulations targeting zero-hours contracts could impose an additional annual cost of up to £2.9 billion on British businesses. An official impact assessment report published by the Department for Business and Trade reveals that these reforms could create significant financial pressure, particularly on sectors that heavily utilize flexible working models.

The new regulations, to be implemented under the Employment Rights Act 2025, stipulate that employees on zero-hours contracts must be offered guaranteed working hours based on their regular hours worked over a specific reference period (typically 12 weeks). Additionally, rights such as reasonable notice for shift changes and compensation for shifts cancelled or altered at short notice are being introduced. According to the Department's analysis, the total cost of these reforms could range from £350 million to £2.9 billion annually, depending on which employee groups are covered by the new rights, with a central estimate of £1.1 billion. The provision for compensating cancelled shifts alone is projected to incur costs of up to £1.3 billion.

Sectors most affected by these regulations include retail, hospitality, entertainment, support services, education, and health and social care. These industries heavily rely on zero-hours contracts due to fluctuating staffing needs and short-notice scheduling. Business representatives, such as the British Retail Consortium (BRC) and UK Hospitality, warn that these “eyewatering” costs will place a significant burden on businesses and reduce operational flexibility. It is emphasized that small businesses and firms employing seasonal workers, in particular, may struggle with these additional costs and administrative burdens.

The Labour Party had pledged to address “exploitative” zero-hours contracts in its 2024 election manifesto, and this bill is seen as part of that commitment. However, even the Department for Business and Trade’s own analysis acknowledges that these changes will increase employers’ administrative costs, reduce flexibility, and could make it harder for companies to respond to fluctuations in demand. Despite this, the government believes these measures will provide overall economic benefits by improving worker well-being and productivity, thereby creating a fairer employment environment. Trade unions, on the other hand, dismiss employers’ warnings as “bad faith scaremongering,” arguing that the regulations will bring security and stability to workers. The number of people working on zero-hours contracts in the UK has reached 1.24 million, an increase of 207,000 since the Labour Party came to power in July 2024.

Business leaders warn that these new regulations, especially given existing cost pressures such as increases in the national minimum wage and national insurance contributions, will further raise hiring costs and complicate efforts to combat the youth unemployment crisis. While the government is reportedly considering setting a threshold for “low-hours contracts” between 8 and 20 hours per week, unions are pushing for this threshold to be raised to up to 48 hours per week. Where this threshold is ultimately set will be the biggest determinant of the cost to businesses and will shape the final impact of the reforms. The Department for Business and Trade’s consultation process on this matter will conclude on August 25, with final decisions expected to become clearer after this date.