Labour’s zero-hour contract reforms could cost businesses up to £3bn annually

The Labour government’s proposed crackdown on zero-hour contracts is projected to impose costs of nearly £3bn per year on British firms, according to a newly published impact assessment. While the official analysis suggests the net economic burden will be lower due to associated social benefits, business leaders have warned that the true financial impact could spiral significantly higher when administrative and systemic adjustments are taken into account.

The reforms aim to provide greater security for flexible workers by introducing rights to guaranteed hours, reasonable notice of shifts, and compensation for cancelled work. The government’s assessment indicates that the right to guaranteed hours alone could cost employers up to £450m annually. Additionally, rules requiring payment for shifts cancelled at short notice may add up to £1.3bn to business expenses, while extending the notice period for roster changes could cost between £620m and £1.2bn per year, depending on whether a one-week or four-week notice is mandated.

In its central costing scenario, the government estimates these measures will cost firms £1.1bn annually. However, when accounting for the social value of improved worker rights, the net cost to the economy is projected to range from £800m in the central case to £1.4bn in high-end scenarios. The assessment notes that the threshold for hours worked per week will be a critical factor in determining the final cost, with expenses rising substantially as thresholds increase.

Industry bodies have reacted sharply to the proposals. Tina McKenzie, interim chair of the Federation of Small Businesses, criticised the government’s approach as chaotic and warned it risks replicating the unemployment issues seen under previous administrations. She urged ministers to pause the reforms to avoid damaging workplaces and those seeking employment, arguing that a more positive dialogue with businesses is required.

Helen Dickinson, chief executive of the British Retail Consortium, highlighted that the published estimates fail to capture the full extent of the burden. She pointed out that retailers will face hundreds of millions of pounds in additional costs to update HR and payroll systems to comply with the new regulations. This comes at a time when the sector is already grappling with a £5.6bn increase in employment costs, contradicting former Chancellor Rachel Reeves’ pledge to reduce pointless administrative burdens by a quarter.

Kate Nichols, chief executive of UK Hospitality, described the potential costs as eyewatering and argued that the government should instead focus on incentivising employment within a sector that employs large numbers of young people, part-time staff, and non-graduates. Conversely, a spokesperson for the Trades Union Congress defended the legislation, noting that the upper cost estimates rely on the assumption that employers will continue to cancel shifts at short notice. The union stated that the primary aim is to end this practice and provide stability for variable-hours workers, asserting that responsible employers have nothing to fear from the changes.