Government analysis has put the cost to business of its planned reforms to zero hours contracts at up to £2.9 billion a year, with sectors such as hospitality and retail expected to be worst affected.
The figures appear in impact assessments for Angela Rayner’s signature workers’ rights reforms, published alongside a Department for Business and Trade consultation on measures in the Employment Rights Act 2025. The consultation closes on 25 August.
The reforms would require companies to offer staff a guaranteed number of hours a week, reflecting their current workload. Employers would also have to give workers “reasonable notice of shifts” and pay them for shifts that are “cancelled, curtailed or moved at short notice”.
At present, zero hours contracts do not specify a minimum number of hours to which workers on such contracts are entitled.
Officials calculated that if all employees on zero hours contracts were included in the scheme, it could cost businesses £2.9 billion a year. Restricting the new rights to those working fewer hours would lower the cost to £1.1 billion a year, the analysis found, while including only those on the fewest hours would cost businesses a minimum of £350 million a year.
The government’s assessment found the measures would have a negative impact on companies through new administrative requirements, extra staffing costs and lost revenue. It also warned the plans would make it harder for employers to respond to changes in demand, with potential knock-on impacts on revenue and investment.
The document said the government believed there would be wider benefits to the economy. It said the measures would support growth through improved worker wellbeing and engagement, increasing productivity, while encouraging better workforce planning and creating a more level playing field for employers who already provide secure and predictable work. It added that these benefits were hard to quantify.
Kate Nicholls, chair of the trade body UKHospitality, said: “The eye-watering cost of these reforms comes at the worst possible time for hospitality businesses, arriving on the heels of more than £5 billion in additional employment costs in the past two years.
“More than 100,000 jobs have already been lost in hospitality as a result and the extraordinarily high cost of employment continues to restrict job opportunities, particularly for young people. This is on top of hospitality being disproportionately hit by business rates and our high rate of VAT.
“These reforms add yet more cost, at a scale that far outweighs the cost benefits for employees.”
The Federation of Small Businesses said the government risked “soaring unemployment” from its “chaotic approach to employment reform”.
Helen Dickinson, chief executive of the British Retail Consortium, said the cost to employers was “hugely disproportionate to the benefits for employees”. She said: “Adding further costs [on businesses] when youth unemployment is soaring risks being a hammer-blow to young people’s job prospects, at precisely the time businesses across the country need to be creating more opportunities.”
Neil Carberry, chief executive of the Recruitment and Employment Confederation, said he believed the government had underestimated the true compliance cost of the plans. “Even so, government’s data suggests it will cost employers up to £8 million every day, or roughly the annual wage bill for 137,000 full-time workers between 18 and 20 years old on national minimum wage,” he said. “It is time to think again.”
The Trades Union Congress said much of the additional cost to business would arise if employers cancelled shifts at the last moment. “This is an upper estimate of a very wide range and nearly half of this figure is based on the assumption that employers will continue to cancel shifts at short notice,” a spokesperson said. “The aim of this legislation is to stop this practice and give variable hours workers security and stability, so good employers have nothing to fear.”
A government spokesperson said: “We are absolutely committed to ending exploitative zero hours contracts, where workers bear all the financial risk when hours, shifts and earnings are unpredictable. These reforms will give workers in every postcode greater income security and predictability of hours and while no final decisions have been made, we’re consulting to get the detail right and ensure this works in the real world.”
