Make the Economy Better – Abolish Zero-Hour Contracts

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Minister Ged Nash launched an investigation into the extent of zero and low-hour contracts in the labour market.  This is most welcome – we need this information which is not available in official surveys (though it should be noted that the investigation into low-hour contracts could be extremely limited as they are only examining eight hour or less contracts – whereas low-hour contracts can go as high as 20 hours).

But what would be even more welcome would be an announcement that zero-hour contracts will be abolished.

I will refer to zero and low hours contracts as precarious contracts.  These contracts require employees to be available for a certain number of hours per week, or when required, or a combination of both – but without any guarantee of work.

Under Irish law, if the employee gets no work, then the compensation should be either 25% of the possible available hours or for 15 hours – whichever is less. If the employee gets some work, they should be compensated to bring them up to 25% of the possible available hours.   Here are a couple of examples:

  • Janet is required to be available for work for 20 hours a week.   She gets no work.  She must be paid, nonetheless, for 25 percent of the available hours – five hours (this is less than 15 hours).
  • Bob is, also, required to be available for work for 20 hours a week.  He gets four hours’ work.  Since he is entitled to five hours payment (25 percent of his work availability), he get an extra hour payment.

I don’t intend to list all the negative impact of precarious hour contracts on workers.  Suffice this piece from Paul Mills writing in the Examiner:

‘The ‘employee’ is effectively reduced to a commodity like a tin of beans on a shelf waiting until someone comes to pick him or her up. It is not sustainable and is effectively immoral.

This type of contract means that the employee has no guaranteed hours or roster but must be available for work.

Whilst the system is undoubtedly beneficial to the employer, it puts the ‘employee’ at a serious disadvantage. It means there is no sick pay, only limited holiday pay, and getting a loan or a mortgage is impossible. In fact there is no guarantee of any work, so no guarantee of any pay and all that leads from that.

It takes us back to the days when fruit pickers, dock workers, farm labourers and general workers stood at a designated corner and waited for an employer to come by in the hope of being selected to work that day.’

Well put.

Of course, there is an economic impact from this.  If I am unsure how many hours I will work next week or the week after and so on, I can’t plan expenditure beyond the minimal.  I am effectively excluded from fully participating in the consumer economy which, in turn, suffers from my absence.

Precarious-hour contracts play a key role in subordinating and controlling employees.  I am less likely to join a union, never mind recruit fellow workers to one, if my employer can deny me hours.  I am less likely to make a complaint regarding a health and safety violation.  In short, I am going to be a quiet, compliant employee willing to endure anything just so that I don’t get on the wrong side of my employer and lose hours.  Some companies go so far as to arrange rosters so that the same employees don’t work with each other too long, lest they start talking about working conditions and how they can make them better.

But let’s shine a different light on this issue (and suggest a few ways to abolish these detrimental contracts).   Leaving aside the ‘control factor’, it is argued that precarious-hour contracts are necessary for ‘flexibility’.  If that were the only argument, then such contracts can be seen as highly inefficient beyond a certain minimal level.  That flexible contracts have a role in the economy is not the issue.  There is a whole science with dedicated technology associated with rostering. Over-reliance on these contracts suggests a management failure at being able to organise a roster properly.

Traditional business economics would tell us that the business would suffer from such inefficiency – unless it transfers the cost of the inefficiency somewhere else.  And that’s what happens with precarious-hour contracts.  There are three parties that suffer when inefficient businesses transfer their costs.

First is the worker, through precarious employment and in-work poverty

Second, the state through social protection subsidies (e.g. part-time payments, Family Income Supplement) and loss of tax revenue

[Note:  the worker, therefore, pays twice:  first as a precarious employee and, second, as a taxpayer; how’s that for double ‘taxation’].

Third, other businesses which lose out on turnover because the precarious employee cannot fully participate in the consumer economy.

Because of management failure, an entire economy suffers.  So how can we abolish precarious-hour contracts and the imposed costs on workers, businesses and the state?  Below I put forward a few ideas for discussion.  This is not the last word and I reserve my right to change my mind if anyone points out a problem with them or comes up with better ideas.

  • If someone is on call, then they should be entitled to on-call or standby pay.  This could be at minimum wage or even below.  I leave open the possibility that the standby pay could initially be below the minimum wage since it is not pay for work but being available for work; the standby pay could be phased upwards toward the minimum wage to give employers the opportunity to improve their efficiency. Whichever approach is taken, it would guarantee workers a certain minimum pay.
  • An alternative approach would be to require employers to offer a minimum hour’s remuneration contract.  For instance, someone taking up a job would be guaranteed 15 or 20 hours work – with this minimum rising with length of employment.
  • Again, another alternative would provide workers on a precarious hour contract with the right to a fixed hour contract after a certain period of employment (e.g. 12 weeks, 16 weeks).  This fixed term would be based on their pattern of working hours.  This would act like a probation period – giving workers increased rights after a minimal period of employment.
  • The EU Directive on Part-Time Work should be immediately put into law (it dates back to 1999).  This would allow part-time workers the right to extra hours when they become available.  This would be in addition to any of the above options.

There is further need to provide an efficient social protection safety net for part-time workers (which we don’t have) and remove disincentives to employing full-time work (because it is cheaper to employ part-time work – in payroll costs and working conditions).

No doubt, employers will complain about loss of flexibility and additional pay costs.  Regarding the former, flexibility has not been removed; what the above proposals do is to prevent businesses from imposing the cost of precarious-hour, exploitative contracts on to other stakeholders (workers, other businesses and the state).

Regarding extra costs, all that is being asked is that employers compensate workers for being on-call or standby – which is perfectly reasonable.  The more efficient businesses become in managing their rosters, the lower the standby costs.   But let’s do an exercise, using Eurostat data for the retail sector.

  • In 2012 there were 265 million hours worked in the retail sector.  Let’s assume that 25 percent additional hours (66,000,000) represents the unpaid standby hours experienced by precarious-hour contract workers.
  • Let’s assume hourly standby pay of 50 percent of the minimum wage (i.e. €4.32).
  • That represents a total cost of €287 million to the sector.  Sounds like a lot.  But turnover in the sector was over €33 billion.  So this additional payment represents less than 0.8 percent of turnover, or 40 cents on each €50 bought in the sector.  A little inflation, yes, but not much.

However, the cost to the sector would dramatically fall as businesses become more efficient.  And the gain to the workers and the state (through increased income, tax revenue and reduced social protection payments) would not be insignificant.

But let’s get real here for a moment:  the proliferation of precarious hour contracts has little to do with flexibility.  There are a number of companies that do not use them – for instance, Tesco and Penny’s.  If they don’t need to use them (and they have all the issues regarding flexibility), it is hard to see how similar businesses need them.

The fact is that precarious hour contracts are used primarily for control and discipline reasons as mentioned above.  And this type of practice should be eliminated in all workplaces.

It makes sense to abolish precarious-hour contracts – in equity and in efficiency.  This is part of the broad Living Wage approach: to boost hourly wages and working hours.  This is part of a new, progressive agenda.

To paraphrase the Taoiseach – this is about making Ireland the best little country to work in.

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