Labour's proposed overhaul of zero-hours contracts could leave British businesses facing an annual bill of up to £2.9 billion, according to the Government's own impact assessment. The reforms would give workers greater certainty over their hours by requiring employers to offer guaranteed minimum hours in certain circumstances, while businesses could also be required to compensate staff when shifts are cancelled or changed at short notice.
Cost estimates vary by threshold
There are currently around 1.24 million people working on zero-hours contracts across the UK, with the number having risen by almost 200,000 since Labour came to power in July 2024. The final cost will depend heavily on how ministers set the eligibility threshold for workers seeking guaranteed hours.
Government estimates suggest that extending the right to a fixed-shift pattern to people regularly working up to eight hours a week could cost businesses around £350 million annually. But if the threshold were increased to cover workers putting in up to 24 hours a week, the estimated cost could rise to £2.9 billion. Ministers are also consulting on the possibility of a threshold as high as 48 hours a week.
Breakdown of potential costs
The impact assessment estimates that offering guaranteed hours could cost employers up to £450 million a year. Rules requiring businesses to provide reasonable notice when shifts are changed could add another £1.2 billion, while compensation for shifts cancelled or altered at short notice could cost a further £1.3 billion. Under the Government's central scenario, the overall annual cost is estimated at around £1.1 billion.
The proposals are expected to have a particularly significant impact on industries that rely heavily on flexible staffing, including hospitality, health and social care and the arts. The consultation is due to close next week, meaning key details of the reforms have not yet been finalised.
Business and political reactions
Kate Shoesmith, from the British Chamber of Commerce, warned the additional costs could place further pressure on struggling companies. “The increased cost to businesses of the proposed changes to zero hours contracts will be a further hammer blow for many firms struggling to keep their heads above water,” she said. She added: “We are already facing a youth unemployment crisis now is not the time to make it even more costly for employers to hire.”
UKHospitality chair Kate Nicholls also raised concerns over what she described as the “eye-watering cost of these reforms”. She said businesses were already dealing with more than £5 billion in additional employment costs over the previous two years, with more than 100,000 hospitality jobs lost. Retailers are also warning that the headline figures may not capture the full financial impact. Helen Dickinson, chief executive of the British Retail Consortium, said the estimates “only tell part of the story”, as companies would also have to spend money updating their HR and payroll systems.
Shadow Business Secretary Andrew Griffith said young people could ultimately bear the brunt of the changes. “Once again, it will be young people who will pay the price, during a growing crisis of young Brits out of work,” he said.
Wider costs and government defence
The proposed changes would come on top of other costs associated with the Employment Rights Act. These are estimated to add around £1 billion a year through measures including enhanced sick pay, greater union access to workplaces and stronger protections against unfair dismissal. The reforms were championed by Angela Rayner, Labour's former deputy leader, who is now Housing Secretary.
One particularly contentious proposal is a 12-week reference period for calculating new contracts. Employers have warned that the system could make seasonal employment more difficult, potentially affecting summer jobs and the availability of additional shifts during busy periods such as Christmas. The debate comes as more than one million young people are reportedly neither in education nor employment, while businesses have repeatedly warned that higher employment costs, national insurance increases and rises in the minimum wage are making them more cautious about recruitment.
The Government has defended its plans, arguing that the current system leaves workers carrying too much financial uncertainty. A Government spokesperson said: “We are absolutely committed to ending exploitative zero hours contracts, where workers bear all the financial risk when hours, shifts and earnings are unpredictable.” They added: “These reforms will give workers in every postcode greater income security and predictability of hours and while no final decisions have been made, we're consulting to get the detail right and ensure this works in the real world.”
The Trades Union Congress has challenged the focus on the £2.9 billion figure, arguing that it represents the upper end of a wide range of possible costs. The TUC also said almost half of that figure depends on an assumption that employers will continue cancelling shifts at short notice. The union body argued that the legislation is specifically designed to discourage that behaviour and said responsible employers “have nothing to fear”.
Ministers will now consider responses to the consultation before deciding the final shape of the reforms, including the crucial threshold that will determine how many workers are entitled to greater certainty over their hours.
