The future of flexibility: Preparing for reforms to zero-hours contracts

With reforms to zero-hours contracts on the horizon, specialist employment lawyer Philip Pepper advises that the time to act is now and offers practical guidance on the decisions employers should be making today.

By Phil Pepper

Summary: The number of workers on zero-hour contracts has hit record highs. Proposed reforms will fundamentally change how flexible working arrangements operate. HR teams are facing a significant operational rethink and need to prepare now rather than react later.

With the number of workers on zero-hour contracts reaching record highs in the UK and proposed reforms going through consultation, future flexible working arrangements hang in the balance for employers and workers alike.

Questions still remain about how zero-hours contracts will operate and key details are yet to be finalised through secondary legislation. Many employers and HR teams are left seeking clarity on how to balance flexible operations with the correct resources.

A labour market built on flexibility

Despite debates around the use of such arrangements, according to figures from The Work Foundation at Lancaster University, approximately 1.23 million people aged 16 and over are employed on zero-hour contracts as of December 2025. This represents an increase of 91,000 compared with the previous year.

For some businesses, zero-hours arrangements have provided a practical response to fluctuating customer demands and ongoing economic uncertainty.

In sectors with unpredictable trading patterns such as retail and hospitality, the ability to scale staffing levels up or down as needed has enabled businesses to remain viable.

Such terms also mean businesses can offer tailored employment opportunities. This includes providing younger workers with an important entry point into the already squeezed labour market or more flexible options for people with care taking obligations.

At the same time, concerns persist about income unpredictability for individuals who rely on these roles as a primary source of income.

This is particularly evident where working patterns become regular without the support of contractual certainty. For example, taxi drivers, who perform regular work but are not contracted to fixed hours.

Legally, most individuals engaged on zero-hour contracts are classified as ‘workers’ rather than ‘employees’

The current legal position

Legally, most individuals engaged on zero-hour contracts are classified as ‘workers’ rather than ‘employees’, a distinction that carries significant implications.

Employees benefit from a wider range of protections including unfair dismissal rights. On the other hand, workers typically receive more limited entitlements. For example, holiday pay, National Minimum wage protections and working time safeguards.

Employment tribunals do also already examine whether contractual agreements reflect the reality of the working relationship. A key factor is ‘mutuality of obligation’. Where individuals consistently work regular hours over time, tribunals may determine that an ‘employee’ status persists in practice, even where contracts suggest otherwise.

It’s important to note, however, discrimination protections apply regardless of status. This means employers must already manage flexible workforces carefully from a compliance perspective.

The proposed reforms

Labour’s 2024 election manifesto pledged to ban what it described as “exploitative” contracts. However, the legal meaning of this remains subject to interpretation.

In practice, tribunals are likely to focus on whether contracts accurately reflect working patterns or whether flexibility operates predominately to the employer’s advantage without corresponding security for workers.

The ERA proposes several significant changes expected to take effect by 2027, including:

A right to guaranteed hours reflecting regular working patterns
Compensation for shifts cancelled or altered at late notice
A requirement to provide reasonable notice of working schedules.

In practice, guaranteed hours are likely to be assessed by reviewing current working patterns over a reference period. This will require employers to collect and analyse workforce data more consistently. It will place greater emphasis on accurate record keeping and rigid workforce monitoring.

Alongside these reforms, the government has indicated a broader intention to consult on employment status itself, potentially reshaping how individuals are categorised as employees, workers or self employed.

The enforcement of such changes is expected to involve both employment tribunals and a proposed new Fair Work Agency. The Agency will be responsible for penalising non-compliant employers on issues such as national minimum wage or sick pay violations.

It is important to highlight here that employment tribunals are already operating under significant pressure. The proposed expansion of workplace rights under the ERA is likely to increase claim volumes, potentially requiring additional judicial resources and tribunal capacity.

Tribunals are likely to focus on whether contracts accurately reflect working patterns

Time to reassess

While the reforms aim to improve predictability for workers, they also present operational challenges. Reduced flexibility, combined with rising employment costs linked to National Insurance contributions and minimum wage increases may place additional pressure on already tight margins in certain industries.

Employers considering agency labour as an alternative source of flexibility may also find this option less straightforward, as the proposed rights to guaranteed hours and compensation are expected to extend to agency workers as well.

For HR teams, the focus will increasingly shift toward workforce structures. Organisations may need to reassess whether roles are best defined as permanent, fixed-term or agency positions, supported by clearer rostering systems and contingency planning for absences or fluctuating demand.

As such, employers will need reliable methods for tracking hours worked, identifying eligibility thresholds and managing scheduling practices consistently across teams.

Communication will also play a vital role. While some workers may welcome increased stability, others who value flexibility and autonomy will look to HR professionals to carefully explain and offer support around contractual changes.

The immediate priority for HR leaders is preparation rather than reaction

A wider turning point?

The proposed reforms under the ERA mark one of the most significant developments to UK employment law since the 1972 Contracts of Employment Act, expanding access to workplace protections while reshaping how flexibility operates in practice.

As the consultation continues, the immediate priority for HR leaders is preparation rather than reaction. Reviewing workforce structures, investing in scheduling systems and understanding working patterns now will help organisations adapt more smoothly as the final legislation emerges.

In the evolving debate around flexible work, the challenge for employers will be finding a sustainable balance. This means maintaining the agility businesses rely upon while responding to growing expectations around the security of work.