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MPs ask experts to review impact of higher minimum wage for zero-hours workers

10 Apr 2018 By Miriam Kenner

‘Acid test’ will be if government bolsters position of precarious workers faced with ‘unscrupulous employers’

A minister has written to low pay experts to formally seek their views on the impact of higher minimum wage rates for those on zero-hours contracts and non-guaranteed hours.

While this firms up the government’s vow to consult on the recommendation made in the Taylor review in July 2017, experts say the real test will be whether it decides to implement it in the future. 

In February, the government’s ‘Good Work’ plan responded to Good Work: The Taylor Review of Modern Working Practices, its commissioned report by policy expert Matthew Taylor, with a series of further consultations on a number of the report’s proposals. One was the introduction a higher minimum wage rate for workers on zero or non-guaranteed hours.

Business minister Andrew Griffiths, the Department for Business, Energy and Industrial Strategy’s (BEIS) parliamentary under-secretary of state, last week (4 April) wrote to the Low Pay Commission’s (LPC) chairman, Bryan Sanderson, People Management has learnt. 

He confirmed that the government accepted that the LPC should be asked to consider the impact of introducing a higher minimum wage rate for hours worked but not guaranteed in a contract. He asked it to assess the nature and extent of the issue identified in the review and the impact of the proposal. 

It must also “consider any alternative policies that they consider address the same issue, including relevant international comparisons, and any evidence provided by stakeholders”. 

The letter to the independent advisory body on the national minimum wage, however, stated that “fewer than 3 per cent of the workforce classes itself as being on zero-hours contracts and the majority of the 901,000 people who do are happy with the number of hours they work”. It added: “Matthew Taylor said ‘to ban zero-hours contracts in their totality would negatively impact many more people than it helped’.” 

The letter noted that the report identified a risk of “one-sided flexibility” in the labour market, and “workers’ concerns over lack of security and uncertainty over when they will next receive work”, but that it found “many examples of workers benefiting from flexible working arrangements”.

The government seeks to “find ways to tackle this issue that retain the flexibilities that many workers find valuable” while avoiding “placing unnecessary burdens on business”, but to make good on its promise “to enhance rights and protections for millions of flexible workers”.

The LPC is expected to report back in October, after which ministers will “take a decision on what next steps are appropriate”.

Taylor said the government should ask the LPC to advise on the proposal as it was “fundamental” that the government “take steps to ensure that flexibility does not benefit the employer at the unreasonable expense of the worker, and that flexibility is genuinely a mutually beneficial arrangement”. 

Specifically, he suggested that the government ask the LPC to “consider the design and impacts of the introduction” of the wage and set the new higher rate “at a level that incentivises employers to schedule guaranteed hours as far as is reasonable within their business”.

This would allow businesses to still have the ability to offer zero or short-hours contracts, or to request that an individual works longer hours than those guaranteed in their contract, “but would have to compensate the most vulnerable workers (those on low wages) for the additional flexibility demanded of them”, the report stated. 

An individual whose contract only guaranteed six hours a week, but is regularly asked to work more, should be entitled to the standard national minimum or national living wage rate for the first six hours they worked in a week, and then this new higher rate for any hours beyond that, it proposed.

This would be achievable as “an employer could average hours and pay out over a pay reference period” to still give employers – particularly those using longer pay reference periods – flexibility to respond to changing demand, but would “give individuals more certainty over the pay they are likely to receive in a given period”. It would also compensate more fairly those asked to work extra shifts, Taylor suggested.

Diane Nicol, partner at Pinsent Masons and a Taylor review panel member, told People Management that the review “considered the thorny issue of how to protect those who are in more precarious engagements – such as zero-hours contracts and non-guaranteed hours contracts” and asked the [LPC] to consider how a higher national minimum wage might “apply to these more precarious workers”.

She described this recommendation being actioned by the government as “positive”, but that, “as with many of the recommendations that the government supports, the acid test will be whether this results in a change to strengthen the position of precarious workers where they are faced with unscrupulous employers”.

Nicol said there had also been a recommendation that such workers be permitted to ask for permanent contracts after a period – but that this had been criticised as “toothless” by many employee representatives.

“The difficulty of course for Taylor and now the government is to address one-sided flexibility but to maintain the flexibility that enables the economy to thrive through developing business models and to recognise that the majority of employers are decent employers,” Nicol told People Management.

The LPC, currently consulting on the minimum wage, will publish its findings with its annual wage report, but this will be enlarged to take into account the impact of the broader topic of the wage proposal for zero-hours contractors.

It will consider practices in Australia and the Netherlands, where zero-hours contracts are banned, and in countries that fine employers giving workers less than three hours’ notice of work shifts.  

Taylor told People Management that he had consulted with the LPC when writing his report. He has since outlined his detailed recommendations for the proposal, and the issues the LPC will have to resolve if it proceeds with it, in a written statement to the commission on 23 March, and would wait for the consultation outcome.

In his submission, he described how his proposal was “usually seen to refer to zero-hours contracts, but there had also been an increase in what might be called ‘nominal hours’ contracts – ones in which employers guarantee, say, one or two hours a week – but customarily require/request much more working time”.

This has implications for anyone – “even if they are guaranteed many more hours than this – who is then expected to work additional hours”. 

He acknowledged that “while some people are happy with zero or nominal-hours contracts (ZNHCs), for many – particularly those who can’t find other employment – they are a problem”, because they “find it harder to get mortgages or loans and to keep up the payments” and are “generally more dissatisfied with work and suffer greater economic insecurity”.

Moreover, workers on zero-hours contracts lack redundancy rights or rights to claim unfair dismissal, and they therefore “fear ever making a mistake at work, much less raising concerns with management, as this could lead to them being denied the hours they rely upon”.    

More widely, often “ZNHCs are a way for organisations to transfer risk from the employer to the worker”, Taylor said, echoing MP Ed Miliband’s call for the increasing risk in recent years to be shared with employers. Firms that want to operate in this way should pay a premium in the form of a minimum wage top up, Taylor explained. 

A wage premium for variable time would encourage employers to rethink if so much work needed to be by ZNHCs, and people usually asked to work longer than their contractual time would get more guaranteed hours. Further, low-paid people remaining on ZNHCs would get more pay for the risk and insecurity, Taylor said.   

This reflects a national need, Taylor said, to address the “growing problem of unpaid overtime” in the UK economy. As a recent Resolution Foundation report found, one in 10 UK employees work overtime, the average pay premium has dropped and a growing number of workers get little or no top up for working time beyond contracted hours. 

Taylor hoped a low-paid premium would help to set a precedent for employers paying more for extra, non-contracted, hours – given that the UK is one of the only developed economies that lacks an economy-wide framework for mandatory overtime pay. 

A minimum wage premium is “only one of the big areas on which I want to see further progress from the government”, he said.

BEIS said Griffiths’ letter was one among several other steps it had taken in recent weeks following the review, such as the introduction of new laws to give all workers the right to a payslip.

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