75% of employers used ‘flexible contracts’ in 2023

Three quarters (75%) of employers used some form of flexible contract at some point in 2023, and half (48%) of those employers planned to increase use of flexible contracts over the next five years, a report from thinktank the Resolution Foundation has found.

The report, published on the 25th April, defined flexible contracts as variable-hours and zero-hours contracts or temporary work such as casual, seasonal or short-term employment.

The Resolution Foundation found that 25% of employers reported that flexible contracts allowed them to reduce their wage bill. A lower proportion (13%) of employers indicated that flexible contracts enabled them to lower their responsibilities relating to auto-enrolment and employer national insurance contributions.

However, 37% of employers would consider reducing their use of flexible contracts if staff no longer wanted to be employed on them, according to the research findings.

Of the employers that already using flexible contracts, nearly half (48%) indicated that they planned to increase the share of the workforce on variable-hours contracts over the next five years.

Nearly two thirds (63%) of employers claimed that they would change their behaviour if legislation gave workers the right to a fixed-hours contract or two weeks’ notice of their shifts, and 48% would reconsider reducing their use of flexible contracts if the economic outlook became less uncertain.

The Workers (Predictable Terms and Conditions) Act is set to come into effect in autumn 2024. That law means that if a worker’s existing working pattern lacks predictability in terms of the hours they work, the times they work or the length of their contract, they will be able to make a formal request to change their working pattern, to make that pattern more predictable.

The Resolution Foundation, launching the report, said:

“While there is plenty of research on the impact of flexible contracts on workers, the report Firm foundations – supported by Unbound Philanthropy – draws on a survey of more than 750 employers to explore a far less understood but equally important question – why firms use flexible contracts, and what might affect their use of these contracts in the future.

The report finds that around 3.8 million workers nationwide are on some form of flexible contract, and that they are widely used by firms. Three-in-four employers – equivalent to 1.7 million across the UK – report using them.

For many firms, only a small share of their workforce are employed on these contracts. However, over half (53 per cent) of firms surveyed reported using them for at least a quarter of their workforce. These ‘high use’ firms are most commonly found in the transport, logistics and comms, retail and wholesale, and hospitality sectors.

Among firms using flexible contracts, the main reason for doing so was to manage uneven demand, which reduces firms costs and can reduce prices for consumers. Half of firms (51 per cent) listed this as a reason, with a quarter (24 per cent) of firms saying this was the most important reason.

Specific reasons included covering high seasonal demand (23 per cent) and smoothing uncertainty (22 per cent). In addition, one-in-four (25 per cent) firms using such contracts said they allowed them to reduce their wage bill directly.

Firms also report that these types of contracts are popular among workers, with one-in-three (32 per cent) employers using flexible contracts saying that their staff prefer these types of working arrangements.

Current policy may have created perverse incentives for businesses to employ staff for a limited number of hours, with one-in-seven (13 per cent) firms surveyed using flexible contracts to reduce their obligations to contribute to staff pensions and pay employer National Insurance.

This shows that while flexible contracts may be popular for some workers, they are not ‘cost-free’ if it means lower wages and a smaller pension, as well as the insecurity and volatility they can bring, says the Foundation.

The report finds that the use of flexible contracts may well continue to grow in the years ahead. Among employers currently using some form of flexible arrangements, close to half (48 per cent) say that they plan to increase the share of their workforce on variable-hours contracts over the next five years, while just 14 per cent say they plan to decrease their use.

But this growth is not guaranteed, and there are reasons why firms may curb their use of flexible contracts. Almost two-thirds (63 per cent) of firms employing staff on these contracts said they would change their behaviour if legislation gave workers a right to a fixed-hours contract or two weeks’ notice of their shifts, while more than a third (37 per cent) would do so if their staff no longer wanted to be employed on these contracts.

The Foundation says that this shows that new rights to give workers a meaningful choice over their working arrangements could help to stem over-reliance on flexible contracts, and the problems that this can create for workers in terms of pay and job insecurity. However, a blunt tool like outright bans would prove unpopular for many firms, and to a substantial subset of workers too, who continue to benefit from these contract types.”

Hannah Slaughter, Senior Economist at the Resolution Foundation, said:

“Three-quarters of UK firms use flexible employment contracts – such as variable- and zero-hours contracts – for a wide range of reasons, including because firms say that workers prefer them.

But flexible contracts are not always a simple win-win-win for firms, workers and consumers alike. A quarter of firms using them do so to reduce their wage bill, while workers can miss out on higher pay and job security.

New workers’ rights, rather than outright bans, could help to stem over-reliance on flexible contracts – and the problems they can create for workers, while maintaining flexibility for workers and firms who value it.”

The Resolution Foundation analysed data by Savanta, which surveyed 891 senior decision-makers across the public and private sectors.