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Law forcing UK firms to compensate for cancelled shifts could hand workers £1.5bn a year

Tom Belger
Finance and policy reporter
Britain's top union leader Frances O'Grady, general secretary of the TUC, says workers deserve compensation for cancelled shifts. Photo: PA

UK workers could receive a pay boost worth more than £1.5bn ($1.8bn) a year under a new law forcing employers to compensate them for shifts cancelled at short notice, new figures show.

Government papers seen by Yahoo Finance UK reveal more than 1.1 million workers are thought to receive no payment at all when shifts are scrapped even at the last minute.

New official estimates show insecure workers are taking a huge financial hit from cancelled shifts, losing 150 hours or several weeks of work on average every year.

The compensation proposals are part of what the government calls “the biggest upgrade to workers’ rights in a generation,” and follow the Taylor Review into the rise of zero-hour contracts, the gig economy, and flexible but insecure work.

READ MORE: Almost a million workers are on zero-hour contracts

Britain’s top union leader Frances O’Grady, general secretary of the Trades Union Congress (TUC), gave the proposals a cautious welcome, but said zero-hour contracts should be banned to stop workers being treated like “disposable labour.”

A report by civil servants also acknowledges the “increased risk of profit loss” for firms under the plans, warning margins could be squeezed by compensation payments or firms could suffer from limited flexibility.

‘The biggest upgrade to workers’ rights in a generation’

Former prime minister Theresa May promised to improve workers' rights. Photo: PA

Former prime minister Theresa May pledged to improve workers’ rights when she took office and commissioned a review in 2016, but the government is still consulting on several reforms almost three years later.

The government has already announced plans to give all workers a written statement of their rights from day one, including holiday and sick pay entitlements.

It will also give workers the right to request a fixed shift pattern after 26 weeks in a job, though the Low Pay Commission said this change should go further as fear of punishment may stop insecure workers requesting stable contracts.

Now it is seeking employers and workers’ views on two more reforms under new prime minister Boris Johnson — a right to reasonable notice of work schedules, and compensation for last-minute shift cancellations.

How much compensation workers could receive

A key proposal in the government’s reforms, known together as the “Good Work Plan,” would see employers forced to pay staff their full pay for every shift scrapped at short notice.

One official estimate, buried in an impact assessment on the UK government’s website, suggests this could hand staff more than £1.5bn a year, if employers continued cancelling a similar number of shifts as they do now.

That figure could rise to more than £2bn a year if the government defined “short notice” as a longer period more favourable to workers.

But it could also be lower if the notice period were shorter, or if the government based compensation on the national minimum wage rather than full pay.

The proposals “aim to provide workers with greater income and hours security” rather than simply compensation, with hopes they will deter cancellations, according to the government report.

READ MORE: UK wages are rising at the fastest rate since the financial crisis

It predicts many employers will change behaviour rather than fork out for such significant compensation costs, cutting the number of shifts they scrap.

This would then see workers benefit from greater security but only receive £282m a year in compensation.

But it estimates that workers would still effectively benefit to the tune of more than £1.5bn a year, because their typically lower earnings mean every extra pound they earn has far more value than if they were in better-paid jobs.

Over a decade, government officials believe the most likely scenario is businesses paying workers compensation between £2.1bn and £3.2bn.

The report does warn the policy risks encouraging employers to offer fewer, shorter, or even more last-minute shifts, to prevent them having to cancel work and pay compensation. But it suggests such reactions are not likely.

The scale of insecure work in Britain

Construction is one of the UK industries with the highest number of workers in insecure employment without any guaranteed hours, according to official figures. Photo: PA

Yahoo Finance UK recently reported on the scale of zero-hour contracts in Britain, with separate official figures showing almost 1 million people work on contracts with no guaranteed hours.

Zero hour contracts mean that a worker is not guaranteed a set amount of work by an employer and an employee is not obliged to accept any work on offer. Those contracts also mean staff are not entitled to the usual benefits of holiday or sick pay or a regular worker.

Such contracts and self-employment have become common in recent years, with employers and some staff benefiting from increased flexibility but workers left with fewer rights and less security.

The rise of gig economy firms in industries such as food delivery and taxi services has grabbed the headlines, but the contracts are also widely used in hospitality, catering, construction, and health and social care.

READ MORE: Seaside workers earn £5,000 less - and their wages are falling

A survey by the Chartered Institute for Professional Development showed 17% of employers with low-paid, flexible workers gave staff only a day’s notice of their shifts.

Almost half of self-employed or insecure workers in another survey by the Citizens Advice Bureau in 2018 said their income changed at least “a fair amount” each month.

Workers interviewed by the Low Pay Commission, a government advisory body that first proposed the new measures, highlighted their fears of losing hours.

Some also reported cancellations on their way to work or even when they arrived. The government expects the new proposals to both reduce such unnecessary travel costs and give workers greater chances of securing additional hours elsewhere or enjoying more free time.

Employers have already been banned from using highly controversial exclusivity clauses in zero-hour contracts, which ban working elsewhere even though they guarantee no work.

‘The onus will be on the government to ensure the rules are enforced’

Laura Gardiner, research director of the Resolution Foundation think tank, which focuses on pay and living standards, told Yahoo Finance UK the proposals were a “clear step in the right direction.”

“The Resolution Foundation has long recommended that workers on zero hours contracts but who are in practice working regular hours should have the right to a regular contract, and that employers should offer a minimum notice period for shifts,” Gardiner said.

But, she added, “If implemented, the onus will be on the government to ensure that they are enforced.”

“Trade unions have long been calling for workers to be compensated when their shifts are cancelled,” O’Grady of the TUC said.

“But we need to deal with the root of this problem — the 3.7 million workers stuck in insecure work not knowing how much they’ll earn from one week to the next. That means banning zero-hours contracts and giving everyone the right to access a union in their workplace.”

A spokesman for the department for business, energy and industrial strategy said: “We are the first country in the world to address modern working practices to ensure workers’ rights keep pace.

“The majority of the estimated cost of our proposals would be in compensation paid directly to workers whose shifts are cancelled at short notice, helping to tackle the small number of firms who do not treat their staff fairly. The final cost would therefore depend on the behaviour of employers.”