Higher National Minimum Wage for hours not guaranteed in a contract

The Taylor report ‘Good Work’ recommends that the government should ask the Low Pay Commission (LPC) to advise on the impact of bringing in a higher National Minimum Wage for hours which are not guaranteed in a contract.

This recommendation forms part of the work to address the issue around zero or short-hours contracts where individuals are absorbing all of the risk. For many, not knowing when work would be offered, or whether they are entitled to statutory protections like sick pay or holiday pay mean they are unable to make informed choices. According to the report many of the people who attended the review’s evidence sessions said they liked the flexibility of working atypically, so what is the solution?

The report states that employers should be incentivised to provide certainty of hours and income as far as possible, and to think carefully about how much flexibility they can reasonably expect from their workers. Workers need to be able to make informed decisions about the work that they do, to plan around it, and to be compensated if arrangements change at short notice. The report acknowledges that there is undoubtedly an important role for flexibility in the labour market, but believes that too many employers and businesses are relying on zero hours, short-hours or agency contracts, when they could be more forward thinking in their scheduling.

So the recommendation is that government must take steps to ensure that flexibility does not benefit the employer, at the unreasonable expense of the worker, and that flexibility is genuinely a mutually beneficial arrangement – government should ask the Low Pay Commission in its next remit, to advise on the impact of bringing in a higher National Minimum Wage for hours which are not guaranteed in a contract.

This new higher rate should be set at a level which incentivises employers to schedule guaranteed hours as far as reasonable within their business. Businesses would still have the ability to offer zero or short-hours contracts, or to request that an individual works longer hours than those guaranteed in their contract, but would have to compensate the most vulnerable workers (those on low wages) for the additional flexibility demanded of them.

For example, if an individual is on a contract which only guaranteed them 6 hours a week, but is regularly asked to work more than this, they should be entitled to the standard National Minimum or National Living Wage rate for the first 6 hours they worked in a week, and then this new higher rate for any hours beyond that. Following the current regime for calculating the minimum wage, an employer could average hours and pay out over a pay reference period. This would still give employers (particularly those using longer pay reference periods) a level of flexibility to respond to changing demand, but would give individuals more certainty over the pay they are likely to receive in a given period. It would also compensate them more fairly where they are asked to work additional shifts.

The Review team said that the LPC will need to consider the rate at which such a premium should be set and the potential impact on marginal hours of employment and also consider any potential impact on NMW compliance from a more complicated system. And government should also consider other ways in which employers might be encouraged to guarantee more hours to their staff, including the role of voluntary collective agreements.