Zero-hour agreements: key employment law changes

The long-awaited Employment Rights Act 2025 begins rolling out major changes next week. This week, the Guardian reported that the British Retail Consortium (BRC) has warned that the reforms to zero-hour agreements could put more than half of retail jobs at risk.

Retail is the UK’s largest private sector employer. It provides a host of opportunities to a variety of people- students entering the workforce for the first time, parents balancing childcare and family life, and those who might be managing health conditions. These part-time roles are relied upon across the country, and retail isn’t the only sector that will be impacted by the change.

In this article, we look at the introduction of guaranteed hours, zero-hour agreements, and how businesses can prepare for this upcoming change.

Zero-hour agreements: why is this change happening?

Julie Abraham, CEO of BRC, made an important point: the reforms have been made with the right intentions, but if the changes are poorly implemented, that brings risks, making it harder for businesses to hire in an already difficult market. The change hasn’t come from nowhere; it’s an aim to ban what’s been branded “exploitative” zero-hour agreements and provide those on zero-hour agreements and agency workers with greater protections. The ERA 2025 requires employers to offer these employees not only guaranteed hours but also a reasonable amount of notice for shifts, changes to shifts and any cancellations. Similar obligations will apply for agency workers.

It’s important to note that while employers are legally obligated to offer a guaranteed hours contract, the employee is under no obligation to accept the offer. If they prefer, they can stay on zero- hour agreements or low-hour ones.

How will UK guaranteed reforms work in practice?

This is expected to be a continuing obligation, where employees are offered a guaranteed number of hours contract at the end of each reference period. This will continue even where an employee has previously refused the offer.

We await government consultation on the details, but this is expected in the coming months. For those with employees currently on zero-hour agreements, it might be a good opportunity to respond to the consultation. However, as it stands, what this may mean is:

• Employees on shift/ getting paid even when demand dips, as they’ve been guaranteed those hours
• Tracking hours worked over reference periods, issuing updated contracts regularly
• Keeping up to date with reference periods for employees who have turned down the offer previously but need to be offered again
• Struggle during seasonal business to match staffing to demand
• Overstaffing potentially becoming a risk

While there’s potential risks there’s also opportunity:

• Stability in your teams
• An opportunity to lower staff turnover with guaranteed hours, appeasing team members who are looking for set hours each week/ month
• Boosted morale
• Compliance lowers your chances of being taken to an employment tribunal.

What have GUARANTEED HOURS looked like for other businesses?

WHSmith Travel is proof that tiered hours can work. They introduced guaranteed hour bands from 8 to 39 hours per week. With workers given the ability to choose their preferred band, this hasn’t impacted business agility as this has been maintained across more than 400 stores. As a result, flexible working requests dropped by over 50%. Not because this has been restricted for them, but because predictability has eliminated the need for their workers to request this flexibility.

As a result, staff retention has soared, training costs have fallen, and overall operations have smoothed out. They’ve also seen a simplification in payroll as well, due to the reduction in month-to-month fluctuations. Instead of a blanket mandate, they’ve shown that offering your team choice can work.

What steps can businesses take now?

While the changes don’t come into effect until 2027, and we await the government consultation, this change will likely come into force. What that actually looks like, however, is uncertain.

With the information we know now, these are practical steps you can take as a trial before they become mandatory:

• Trial tiered contracts – you could offer guaranteed hour bands from 8 to 39 hours per week. Offer employees the opportunity to choose their preferred bands. Which could in turn lead to a reduction in month-to-month payroll fluctuations.
• Utilise demand forecasting tools to identify the days you could benefit from a leaner workforce and times where you need more resources.
• Speak to your team- if your workforce is happy with their contracts, then panicking and worrying might all be for nothing. You can get a sense check and gauge of where they are, so you can go into the changes prepared.

How can AAB help?

Our specialists across Payroll and HR can help you analyse what this change might look like in your business specifically and help you create a plan to minimise the impact.