Zero Hours Contracts Affect Umbrella Company Users Even More

Most contractors will have noticed with a wry smile the hue and cry in the media over the last few months over Zero Hours Contracts. According to the latest reports in the newspapers, there are somewhere in the region of a million people working in the UK on zero hours contracts. The largest and most famous companies to be using these contracts are Wetherspoons, The National Trust, Sports Direct and even Buckingham Palace.

Naturally, all this fuss is of interest to contractors. Contractors are used to short contracts that can be assigned at a moments notice and similarly taken away at a moments notice. But contractors are also used to the use of vehicles such as umbrella companies which mimic offer a more ‘employment-centric’ version of zero hours contracts. Included in these is the essential element of mutuality of obligation that sets up a service contract (or employment contract) between the contractor and person hiring the contractor. As every contractor worth their salt knows, HMRC is very strict when it comes to what is the basic mutuality of obligation and insists that this must remain in place throughout the contract. According to HMRC:

“A genuine contractual obligation on the part of the employer to guarantee a minimum number of hours work in any 12 month period is likely to be sufficient to provide an obligation on the part of the employer in the gaps between assignments … Guaranteeing a minimum number of hours in any 12-month period would be akin to the employer paying a retainer … This is because if the guaranteed numbers of hours are not provided to the worker, then the employer has a contractual obligation to pay for the hours (or balance of hours) not provided at the national minimum wage or agreed payment rate … The number of guaranteed hours which would be sufficient to give rise to an obligation on the employer’s behalf is not beyond doubt. It is understood that the 336 minimum guaranteed hours generally provided for in contracts, represents a notional one working day per week.”

zero-hour-contractsThus, technically any zero hours contract could potentially be seen as being over-arching employment, but in order to do so it would probably need to be offering work as and when it became available and to be paying the contractor for that work. Similarly that contract would be required to contain a provision for paying a retainer to the contractor for the time that they are not working.

This in turn means that those contractors who are currently employed by umbrella companies should, in their contracts, have a number of hours of paid work guaranteed and if they don’t have this they should have some kind of retainer fee when no work is forthcoming. Without these things it is not, of course, an over-arching employment contract and there will be no tax relief for subsistence nor travel.