Zero-hours rules could cost employers £2.9bn annually

New government analysis estimates that planned reforms to zero-hours and similar contracts could impose direct annual employer costs of between £350m and £2.9bn, depending on how ministers set the detailed rules.

The measures were enacted through the Employment Rights Act 2025 but have not yet taken effect. They will create rights around guaranteed hours, reasonable notice of shifts and changes, and payments where scheduled work is cancelled, moved, or curtailed at short notice.

The regulations required to implement those rights remain under consultation. The government has now published additional options assessments and analytical material showing how decisions on hours thresholds, reference periods, notice requirements, compensation, and other parameters could materially change the economic effect.

The new modelling moves the debate beyond the structure of the zero-hours consultation already set out earlier this summer by attaching ranges to the potential employer cost and worker benefit under different regulatory choices.

The government estimates the reforms could produce a monetised net annual cost of between £300m and £1.4bn after the benefits it is able to quantify are taken into account. That equates to between £3bn and £14.1bn over ten years.

The ranges are not forecasts of one final policy. They represent different combinations of options still being considered and demonstrate how much the final cost depends on where ministers set the thresholds.

Payments for shifts cancelled, moved, or curtailed at short notice are estimated at between £5m and £1.2bn. Government research found that 59% of people in insecure work whose shifts had been changed or cancelled at short notice did not typically receive compensation.

Income volatility is also evident elsewhere in the evidence. Some 53% of workers in insecure work said variable income affected their ability to cover essential expenses, while 58% said they would prefer consistent, guaranteed hours matching their usual working pattern.

Short-notice scheduling affected 60% of respondents’ ability to plan or manage their personal lives, 49% reported an effect on household budgeting, and 42% cited the cost of travelling to work. Among parents, 75% reported an impact on childcare costs.

The eventual business effect is likely to be concentrated in sectors where variable demand and short-notice scheduling are common. Hospitality, retail, arts and recreation, administrative and support services, education, health, and social care all make significant use of flexible staffing arrangements.

Compliance will extend beyond the value of additional hours or cancellation payments. Employers may need scheduling systems capable of tracking reference periods, identifying qualifying workers, recording changes, issuing guaranteed-hours offers, calculating compensation, and retaining evidence that notice requirements have been met.

Managers may also have to change the way overtime, additional shifts, and last-minute cover are allocated. Businesses that have historically used highly variable staffing to match demand could face a choice between carrying more contracted capacity or accepting greater compensation and administration costs.

The government accepts that more predictable hours can reduce employer flexibility and may have effects on output where businesses find it harder to respond to short-term demand. Its analysis also identifies potential benefits through higher worker wellbeing, improved financial security, lower travel and childcare disruption, and stronger workforce engagement.

The largest uncertainty now lies in the implementing regulations rather than the existence of the statutory rights. Parliament has already established the framework, but the range of employer costs illustrates how different the operational outcome could be under a narrow or broad design.

A lower hours threshold would limit the number of workers and working patterns drawn into some provisions. Higher thresholds could expand coverage substantially and bring a wider range of overtime and rota arrangements within the regime.

Employers therefore have direction without final certainty. Companies with large variable-hours workforces can identify where contracts, scheduling, payroll, and workforce systems may need to change, but they cannot yet calculate their final exposure with precision.

The consultation closes on 25 August. Final regulations and implementation timing will determine where within the government’s wide cost range the eventual regime sits and how much advance preparation employers will need before the rights come into force.