Zero hours contract tax and national insurance

Understanding Zero-Hours contract

There is no legitimate explanation or definition for a zero-hours agreement in either United Kingdom or Northern Ireland employment law. In common terms, a zero-hours contract is a pact between two parties, typically an employer and an employee, which states – an employee may be asked to carry out a task for an employer but there won’t be any least possible number of work hours. The agreement will offer pay to an employee if he/she completes the work and will deal with the conditions in which work may possibly be turned down. In simple terms, an employer does not have to guarantee a person any work and the same person is not indebted to perform any task offered to him/her. This reflects the basic groundwork of a zero-hours contract, however, the precise structure of zero-hours agreement may vary from company to company. Below mentioned are a few instances:

  • A person under a zero-hours contract may be employed as a worker or an employee
  • In certain zero-hours contracts an employee might be obliged to take assignments, if offered, however, in others he/she will not be obliged to do so
  • Certain zero-hours contracts stop an individual from working for other companies even when the employer does not has any work to offer, however, certain agreements might permit an individual to work at other places
  • The pay provisions and benefits provided may vary
National Insurance and Tax on Zero Hour Contract

This essentially means that an employer doesnt have to provide an employee any least possible number of work hours. On the other hand, an employee is not essentially obligated to acknowledge the work offer by an employer

Key points for employers

  1. ‘Zero-hours contract’ does not have a precise implication in law
  2. Contracts termed as zero-hours agreements may vary from company to company
  3. Zero-hours workforce may be hired as workers or employees
  4. It is imperative for a company to make sure that written agreements encompass requirements for setting out the rights and responsibilities, status of their zero-hours staff

Employment staff under a Zero-hours contract

There are primarily three chief categories of employment status: Self-employed, worker, and employee. Let’s understand what each means under a Zero-hours contract:


An individual will be termed as an employee if the below mentioned conditions are met:
  • If there is a compulsion to offer personal service
  • The employer defines the way in which a particular work is done and timeline of the project
  • Other factors such as nature and duration of an engagement, reimbursements received by an individual etc.


An individual will be a worker if:
  1. An individual is not carrying out a business and the other individual involved is not a customer
  2. There is a compulsion to offer personal service
  3. He/she does not otherwise meet the criteria of being an employee

‘Worker’ is the toughest group to classify. This is for the reason that they exhibit characteristics of both self-employed and employee status. One way to understand is, an individual who would otherwise be self-employed, but shows characteristics of employees. It is imperative to know that all employees are workers


An individual will be self-employed if:
  1. An individual is not carrying out a business and the other individual involved is not a customer
  2. There is a compulsion to offer personal service

Factors to determine, whether a person is carrying out a trade and whether the other company/individual is a client for that business, are listed below:

  1. The employer does not control the working of an individual
  2. The individual is providing specialist services and raises an invoice for the services offered
  3. The person is not included into the employer’s business
  4. The individual supplies the equipment wanted to perform the service
  5. The individual promotes his/her product/service individually
  6. The engagement is comparatively short in duration
  7. The individual is responsible for his/her work and accountable for compliance issues

General categories of rights and protection

Right/protection Employee Self-employed Worker
Adoption leave, statutory maternity, and leave and paid leave Yes No No
Safety and health at the workplace Yes Yes Yes
Itemised payslip Yes No No
National Minimum Wage Yes No Yes
Paid annual leave Yes No Yes
Pension auto-enrolment Yes No Yes
Safety from discrimination at place of work Yes Possibly Yes
Safety from illegitimate deduction from wages Yes No Yes
Safeguard under the transfer of undertakings legislation Yes No Yes
Right not to be unethically laid off (post two years’ service) Yes No No
Entitlement to be complemented at a disciplinary or grievance hearing Yes No Yes
Entitlement to daily and weekly rest breaks Yes No Yes
Entitlement to get written statement of terms and conditions Yes No No
Entitlement to appeal for flexible working Yes No No
Entitlement under data protection legislation Yes Yes Yes
Legal minimum notice Yes No No
Legal redundancy pay (post two years’ service) Yes No No
Statutory Sick Pay Yes No Possibly
Time-off for ante-natal maintenance Yes No No
Time-off for trade union undertakings Yes No No
Unpaid time-off to care for dependent relative Yes No No
Whistleblowing safety Yes Possibly Yes

Rise in Zero-Hours contract

Zero-hours contracts are gaining popularity. In 2005, ~0.1million United Kingdom workers were under a zero-hours contracts, whereas, between Apr-17 and Jun-17 the Office of National Statistics (ONS) recorded 0.9 million United Kingdom workers employed under a contract that does not promise work. The financial crisis in 2007-08 led to an increase in zero-hours contracts as companies were focusing on reducing cost from wherever possible. In the meantime, workers were more accommodating to the contracts as a secured source of income, compared to losing their jobs. This also increased the number of freelancers as people began to become more comfortable working at hours that were more convenient to them. Individuals working under a zero-hours contract usually earn less than other workers, pay a lesser amount of tax and need more in-work benefits

National Insurance

Most workers pay National Insurance contributions (NIC) before receiving their wages and if an employee earns below the threshold limit, he/she will not be required to pay any contributions. For 2018/19, NIC threshold is £162 per week or £702 per month. The genuine amount of Class 1 NIC an individual will pay depends on what he/she earns till the upper earnings limit – this limit for 2018/19, is set at £892 per week or £3,865 per month

For 2018/19, the weekly rates of Class 1 NIC for workers are mentioned below:
On initial £162 Nil
On earnings between £162 and £892 12%
On amount in excess of £892 2%
For 2018/19, the monthly rates of Class 1 NIC for employees are mentioned below:
On initial £702 Nil
On earnings between £702 and £3,865 12%
On amount in excess of £3,865 2%
Other National Insurance Contributions (NICs) such as Class 1A and Class 1B are different from the ones mentioned above:
  • An employer pays Class 1A NIC if they provide an employee some benefits in kind, for instance, a car for personal use. An employer is liable to pay NIC on the worth of the benefit in kind
  • An employer pays Class 1B NIC if they have signed a special contract with Her Majestys Revenue and Customs (HMRC) called a PAYE settlement agreement. This is where an employer is liable to deposit income tax due on some reimbursements in kind and expenses payments
Speak with an expert

Any questions? Schedule a call with one of our experts.

About the author
Blog Author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.

  • Book a free consultation
Receive accounting news and updates in your inbox

About the author
Blog Author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.


See how dns can help
you today.

Save tax
Save tax

Our experts will work with you to reduce your corporation, personal or any other tax liability, all within the rules of the UK tax legislations. We’ll ensure you’re claiming all allowances and expense claims that you would be elegible for.

Reduce your admin
Reduce your admin

We give free software to all of our clients. You’ll be able to raise sales invoices, snap pictures of receipts and be MTD compliant with ease. You can even manage your business anywhere there’s an internet connection, thanks to our mobile app!

Grow your business
Grow your business

Successful business owners are those that are on top of their numbers. Businesses are driven by the numbers behind them. If you’re not reviewing your profit & loss or balance sheet regularly, how would you know how your business has performed and how would you make proper business decisions? We can help you make sense of your numbers.

Free Business Software!

Limited time only!

Free Business Software

Say Goodbye to Bookkeeping Hassles: Nomi offers Free Receipt Processing and big savings!

  • Built in payment solutions.
  • Track profitability, debtors and creditors
  • Snap pics of receipts with the mobile app
  • Free Receipt Processing
  • Hasslefree Bookkeeping
  • Cost Reduction
Get Started
Close nomi