BUSINESSES could face costs of up to £2.9bn a year under planned changes to zero-hours contracts, according to the government’s latest analysis.
With new protections for workers expected to come into force from 2027, employers will need to prepare for changes around guaranteed hours, shift notice, and compensation for cancelled shifts.
Leading company formation agent 1st Formations, which has helped form over one million companies, has identified eight ways businesses can help prepare for the upcoming reforms.
Graeme Donnelly, founder and CEO of 1st Formations, explains: “The government’s latest figures show that the reforms could cost businesses anywhere between £350m and £2.9bn a year, depending on how the final rules are implemented. For businesses that rely heavily on flexible staffing, changes to guaranteed hours and compensation for cancelled shifts could have a particularly significant impact.
“While important details are still being worked out, employers should not wait until the legislation comes into force before considering what it could mean for them. Reviewing working patterns, monitoring hours, and understanding how often shifts are changed or cancelled can help businesses identify where they may face additional costs and where their current approach may need to change.”
1. Businesses may need to offer guaranteed hours
Under the planned reforms, eligible workers who regularly work consistent hours are expected to have the right to be offered a contract reflecting their usual working pattern. The government is currently consulting on the threshold, with its preferred range falling between eight and 20 hours a week.
Businesses should start reviewing how many hours their zero-hours and low-hours workers regularly complete. This will help employers understand which workers could potentially be affected once the final threshold and rules are confirmed.
2. Businesses can still use zero-hours contracts
The reforms do not mean businesses will have to stop using zero-hours contracts altogether. Workers who value flexibility will still be able to remain on these arrangements, including where they choose to reject an offer of guaranteed hours.
Businesses can therefore continue to use flexible contracts where appropriate but will need to ensure they comply with the new protections.
3. Businesses could face costs for last-minute cancellations
Employers are expected to compensate workers when shifts are cancelled, moved, or cut short at short notice. The amount will depend on how much notice is provided, with further details still to be set out in regulations.
Government analysis estimates that compensation for cancelled shifts could account for up to £1.2bn of the total cost of the reforms, making this a significant area for employers to prepare for.
4. Businesses will need to track hours accurately
Accurate records of hours worked will become increasingly important as businesses need to identify regular working patterns.
Employers should review their current time-recording systems and consider whether they provide enough information to track hours across the relevant reference period. Investing in reliable time-tracking or payroll software now could make it easier to comply with the new rules later.
5. Businesses cannot prevent workers taking other jobs
Exclusivity clauses in zero-hours contracts have been enforceable since 2016; however, from January 2026 these protections have widened to cover all zero-hours arrangements, including informal casual workers.
Businesses also cannot penalise workers for taking another job, by reducing shifts or otherwise treating them differently because they have additional employment.
Employers should review contracts and working arrangements and remove any exclusivity clauses which are no longer enforceable.
6. Businesses will need to train managers on the changes
Employment law changes can create risks if managers are unaware of new requirements. Businesses should ensure line managers understand workers’ rights, particularly around additional employment and how workers are allocated shifts.
Training managers ahead of the 2027 reforms can help prevent accidental breaches and ensure new processes are applied consistently.
7. Businesses will need to give reasonable notice of shifts
Workers are expected to gain the right to receive reasonable notice of shifts, including information about the date, start time, and number of hours.
The precise definition of ‘reasonable’ notice has not yet been confirmed, so businesses should keep an eye on further government guidance. In the meantime, reviewing how far in advance rotas are usually prepared can help employers identify potential challenges.
8. Businesses using agency workers will also need to prepare
The reforms will extend to agency workers, meaning businesses that rely on temporary staff will also need to understand their responsibilities.
Under the government’s current proposals, the end hirer would be responsible for offering guaranteed hours to qualifying agency workers, while both the agency and hirer would have responsibilities around providing reasonable notice of shifts.
Agencies would be responsible for paying compensation when shifts are cancelled or curtailed at short notice, although they may be able to recover these costs from the hirer where the hirer is responsible.
Graeme added: “With the potential cost to employers running into billions of pounds, this is more than a compliance exercise. Businesses need to consider how changes to guaranteed hours and shift cancellations could affect the way they plan and manage their workforce.
“The final rules are still being shaped, but understanding current staffing patterns and where additional costs could arise will give employers more time to adapt. For businesses that rely on flexible workers, forward planning will be particularly important as they prepare for the changes.”
For more advice on starting and running a business, visit the 1st Formations Resource Hub.
