AN ANNUALISED MINIMUM WAGE COULD BE FAIRER FOR ZERO HOURS WORKERS

By Laurie Driver​

Zero hours contracts have been around for almost 200 years. Its proponets argue that it is a necessary working arrangement that helps employers adjust staffing levels to fluctuating or hard to predict demand. It would be reasonable to describe them as a necessary part of the economy. In recent years though they have come to greater prominence in the news as their inherently exploitative nature was exposed to the public. Necessary changes did follow - it is now illegal for an employer of zero hours staff to prevent those staff taking additional work elsewhere. 

Minimum hours contracts are a very slight improvement on zero hours contracts, but only barely. Under such contracts, the worker is guaranteed a minimum number of hours each week, but this is often something paltry like four hours a week. Hardly enough to live on and there is still the uncertainty as to how much work one will have. In a sense, a zero hours contract is a special form of minimum hours contract, the minimum being zero.

When you don't know how much work you will have one week to the next, it is difficult to budget accordingly and plan your finances. Statutory sick pay (SSP) only kicks in if you earn on average at least £120 a week, so there is greater pressure on zero hours workers to go into work while sick. And, even if a zero hours worker is eligible for SSP, it is only around £95 a week - they are likely to earn more by going into work; when work cannot be guaranteed, every penny matters. Indeed, in a study for the Trade Union Congress, it was found that the insecure work was major contributor in the spread of Covid 19.

Of course, all workers on zero hours contracts are entitled to the National Minimum Wage (NMA), currently set at £8.91 per hour for those aged 23 and over and due to go up to £9.50 per hour from April 2022. But you don’t need to be an economist to see that a minimum hourly wage does not really solve the problem of not knowing how much work you will have from week to week, especially if some weeks are lower than usual.

According to the latest figures from the Office for National Statistics, almost a quarter of all workers on zero hours contracts said they were underemployed, compared to 6.5% of people who were not on zero hours contracts. There is always the benefits system to top up any shortfall of pay but it is simply not designed to for a working pattern where hours can vary from a little as 3 hours to as many as 48 hours from week to week. This further compounds the income insecurity these workers experience, making budgeting for day to day needs almost impossible.

It's not enough to simply leave it up to zero hours workers to "get more hours" or a second job. If an employee could dictate how many hours they worked each week, they wouldn’t need government support. The exploitative nature of these contracts is that all the control lies with the employer, leaving the employee feeling like Oliver Twist, asking for more please. A second job may be feasible in some cases. But the nature of zero hours contracts is that shifts can be cancelled without notice and without pay. How can someone possibly commit to additional hours with a second employer if they don’t know what days or hours they will work for their first employer? On top of that, there may be difficulties in arranging care for children or elderly or ill relatives.

There is a better way, however. It isn’t perfect, but it may address some of the exploitative aspects of zero hours contracts, while keeping the flexibility employers need to keep their businesses viable, especially in these uncertain times.

I am calling for an Annualised Minimum Wage. This would be a guaranteed earned income over the course of the year and in conjunction with the prevailing minimum hourly wage. Initially, I’d suggest it be set at the level of the income tax threshold, currently £12,570, but I’m sure clever people may suggest a different threshold in time. This would be achieved by annualising both pay and hours. For example, presuming the worker is paid weekly, they would receive £241.73 per week gross, regardless of hours worked that week. (If they are usually paid monthly, that would amount to £1,047.50 a month.) The employer would have the choice to provide no work at all, or the legal maximum of 48 hrs (subject to opt out). Over the course of the year it would be the employer’s responsibility to ensure they provided sufficient work to match the income being provided. As an extreme example, this would mean an employer could stand their staff down for 22 weeks a year when work is quiet, then bring them back for a 48 hr week for the remaining 30 weeks. I would envisage that for most businesses a happy medium could be found between this example and simply putting the employee on a 27 hr week. It would seem logical to me that this model learn from the road haulage industry, where drivers’ hours are capped both on a weekly basis, but also as an average, with this average being calculated over either a 17 or 26 week period. This would offer the employer some quite reasonable protection from unscrupulous employees.

Agreement would need to be reached between the employee or worker, or employee representatives, and employers about how variable hours could be. The example I gave is quite extreme, but is perfectly feasible in the right industry. Furthermore, if agreement could be reached about what shifts could be asked of an employee and with what notice, this would genuinely open the prospect of a second job for those employees who would know what days and times they could commit to.

This arrangement offers many potential benefits to both employer and employee. As both pay and hours are annualised, it allows for a couple of days to be taken as “sick” or personal days, with no fluctuation in pay, as long as the hours are paid back within the terms of the contract. The employer is no longer paying an employee not to work and the employee doesn’t have to worry about whether they can afford to take a day or two off to get over a cold. Workers with young families may be able to agree to work the majority of their hours during term time, taking school holidays off, again with no loss of weekly pay. This could bring thousands of workers back into the workforce potentially. At a time when we need a larger pool of potential job candidates, this is one means of achieving this. Possibly the greatest benefit might be that it could actually make the Universal Credit system work by stabilising the pay of workers

Employers would benefit from greater employee loyalty, less staff turnover, as well as greater productivity because staff are feeling healthier and not having to worry, as much, about meeting their daily needs. For early adopters of such a scheme I imagine their vacancies would be highly prized. Some employers may argue they simply couldn’t afford an annualised minimum wage. I would counter, that at this threshold, on average, it almost matches what they’re paying anyway. Yes, overall, it is likely to cost the employer a little more in cash terms, but one has to put the various benefits against this cash outlay.

For society, the potential benefits are significant. An employee on £12,570 will generate almost £850 in National Insurance (NI) contributions (from April 2022). There are an estimated one million workers on zero hours contracts, that’s almost £1 billion for HMRC. Research suggests that almost four million employees don’t pay tax, plus 1.2 million self employed, so if they could all be brought into the tax threshold by a scheme such as this, it could raise a further £4.5bn annually from NI contributions alone.

Furthermore, improved employee welfare makes for better productivity, a conundrum governments of all colours have struggled with over the years. A stable income means less government support is needed to prop up low paid employment and fewer Department for Work and Pensions staff needed to calculate payments for incomes that previously fluctuated wildly. Giving all workers access to workplace auto enrolment pensions means they can do what they were designed to do and help employees provide for their old age, again reducing the burden of future tax payers. This is, potentially a win, win, win scenario.

This proposal isn’t perfect, it isn’t fully formed and the devil is always in the detail, but it takes from existing working models. Salaried staff are already paid an annualised income regardless of hours worked in any given week. Some employers are already offering annualised hours to hourly paid staff, so the leap to annualised pay is a small one

As you can see, I’m not calling for zero or minimum hours contracts to be scrapped, rather a slightly Frankenstein merging of the two, offering both employer and employee the best aspects of the respective contracts and society a potential solution to the zero hours enigma that has dogged them for so long.

Laurie Driver (not the author's real name) is a lorry driver working on a zero hours contract and can be contacted on Twitter @justsnoozing. This article does not represent the official view of Zero Hours Justice but is published for the purpose of inspiring solutions.