Doing the zero sums

Published on Incomes and Inequality

Pressure on public sector budgets has led to a rise in zero-hours contracts, particularly in the care sector. The biggest losers are vulnerable service-users and staff on poor pay and insecure hours. It all adds up to the next big care scandal

Over the past year, the government has repeatedly raised concerns about the quality of care in hospitals, care homes and people’s own homes.

But is it any wonder that such concerns exist given the dynamics of publicly funded social care provision in this country? Confronted with rising demographic pressures and reductions in funding, many local authorities have used their leverage as the dominant market players to force down prices and commission care more flexibly. This, in turn, has compelled providers to seek ways of maximising the flexibility of their workforce and reducing spending on wages.

The result for care workers, particularly those in the private sector, is a working day divided into 15-minute care slots with pay only for contact time with clients. Enhanced payments for weekend and evening visits and travel times are increasingly a thing of the past. Facilitating these developments has been the growth of zero-hours contracts within the sector.

Now 56% of domiciliary care workers are employed on such a contract, with as many as eight in ten of those working for private providers.

Under a zero-hours contract, an employer is not required to offer the employee a defined number of working hours. The employee is neither guaranteed a set number of working hours nor obliged to take any offered. Working hours and pay vary on a daily or weekly basis for people on these contracts. While social care might be at the sharp end of the use of such contracts in the public sector, it is not unique – these contracts are on the rise in a range of economic ­sectors including retail, hospitality and higher education.

In fact, the growth has been so extensive it has raised concerns in the government. In June, Business Secretary Vince Cable announced a review of the use of the contracts to ensure they are being used fairly.

It is difficult to get an accurate picture of how many people are on these contracts because a significant proportion of employees on them are not aware of the fact and would not recognise the term if asked. Nevertheless, the Office for National Statistics’ Labour force survey shows that 208,000 people reported being employed on zero-hours contracts in the past three months of 2012 compared with just over 134,000 in 2006. Among firms, the Workplace employment relations survey shows that these contracts are now used by 8% of employers across a wide range of sectors.

Employees on zero-hour contracts are more likely to be aged 16 to 24, to have GCSEs as their highest level of qualifications, to work in firms with fewer than 50 employees and to be women. Resolution Foundation estimates from the Labour force survey indicate that 20% work in the health and social care sector, 19% in hospitality, 12% in administration, 11% in retail and 8% in arts, entertainment and leisure. The vast majority are in the private sector but a ­proportion of these firms will be providing contracts for the public sector.

Employers use zero-hours contracts for three main reasons. The first is to maximise the flexibility of their workforce to more easily adjust to variations in demand. Secondly, they use them to manage risk, allowing them to reduce the hours of their workers drastically if needed. Third, they can be used to reduce the on-going costs of recruitment and training staff and avoid particular employment obligations associated with standard contracts. In reality, many zero-hours workers would be found to be employees if their case ever went to tribunal but employers can shelter behind the limited likelihood that this will happen. This, in essence, ­facilitates the transfer of risk from the employer to their employees.

In the public sector, the growth of zero-hours contracts appears to be a response both to funding uncertainties and changes in commissioning. In further and higher education, for example, less guaranteed funding from government means that a growing number of lecturers are being shifted on to zero-hours contracts. This creates flexibility for the institution to change staffing if there is not adequate demand for a particular module from one term to the next or if changes in government funding mean that a course attracts less funding than it previously did.

The shift away from block purchasing in the NHS and social care is also driving the use of zero-hours contracts. As providers have no guaranteed income, greater competition and slimmer margins than before, the contracts allow them to respond flexibly to an altered procurement framework without the risk of carrying spare capacity.

In both the public and private sectors, these contracts are not new. Bank staff have long been used in the NHS and supply teachers have similarly long been present in education. What appears to be different is the fact that in certain sectors, zero-hours contracts are becoming the only employment option on offer. In this environment, there is little choice for employees but to sign the contract despite all the uncertainty that entails. Most worryingly, there is evidence that these contracts are used as management tools, with employees ‘zeroed-down’ if they raise issues about their statutory rights or do not take the hours their employer wishes them to.

Working in this kind of environment undoubtedly affects the quality of service provided, not because staff employed on zero-hours contracts are less professional than those on standard contracts, but because working arrangements of this kind lower staff morale, corrode team spirit and increase staff turnover. Of those on zero-hours contracts, 35% have been with their current employer for less than a year compared with 15% of those not on such contracts. High turnover can only mean less training and skills development and poorer quality services.

From the perspective of individual workers, the ­contracts have serious drawbacks for all but the minority who prize flexibility over security. Staff on them are likely to work fewer hours than they would like and earn less than equivalent staff. The Labour force survey suggests that those employed on zero-hours contracts receive lower gross weekly pay (an average of £236 per week) than those who are not (an average of £482 per week). This correlation is supported by the WERS, which suggests that companies using these contracts have a higher proportion of staff paid between the National Minimum Wage and the low pay threshold of £7.50 per hour.

Low pay coupled with the insecurity of changing hours can make it difficult for people to meet day-to-day costs such as rent and bills. Planning things like childcare can become impossible. Furthermore, fluctuating earnings make it tricky to know how much you are entitled to in tax credits. The eradication of earnings rules under Universal Credit will make this somewhat easier, although Universal Credit payments will still exacerbate the basic problem of variable earnings.

In higher education, a handful of institutions such as Manchester University and City University have announced that they will no longer use zero-hours contracts. This suggests that the use of this type of contract is not essential and that there are other choices that organisations can make. But for that choice to be possible, it will require public sector commissioners and funders to be more creative about how they foster competition on value for money rather than simply on price. The transition from publicly provided services to publicly managed markets is incomplete and at present, the price is paid by those working on the basis of an almost permanent uncertainty – and by the public, who are receiving poorer quality services as a result.

This article originally appeared in Public Finance magazine