Zero hour contracts – Are they creating more debt?

June 4, 2015

According to figures released by the Office for National Statistics, 697,000¹ people in the UK were on zero hour contracts during October to December 2014. This figure accounts for 2.3%¹ of everyone in employment in this country, and represents workers in their main job.

These types of employment contract essentially mean that employers are not required to provide regular work for their staff, unlike the obligation inherent within a standard employment contract. People may be offered a full week, and then receive no other offer of work for several weeks hence.

Impossible to commit to a monthly budget
The inability to budget effectively, as well as difficulty in claiming state benefits when working under these contracts, results in financial hardship for many. Being unable to keep up with credit card and loan repayments, and even worse, sliding into arrears of rent and household bills are common problems.

The benefit system requires that claimants provide notification of a change in their circumstances, and when their situation can change from week to week, it quickly becomes impossible.

Simply meeting the bills can be problematic, but once in debt the situation can quickly become untenable. Debt levels spiral, and with no regular pay there is little likelihood of financial recovery.

What effect is this having on the people of Scotland?
The Scottish Affairs Committee conducted an investigation into the effect of zero hour contracts on Scottish residents. Apart from revealing a lack of transparency regarding the employment rights for people on this type of contract, the research showed that some people seek short-term loans to help them out when they are short of money. These high interest loans often only compound the problem, however.

One of the issues experienced by workers on zero hour contracts is their inability to take on other work if the employer has included an exclusivity clause banning them from accepting additional employment.

Without a regular income, the ability to borrow is compromised, and people in debt find it difficult to negotiate effectively with creditors, or indeed to instil any confidence in them that the debt situation can be resolved with more time.

Dealing with debt on a zero hour contract
Under these circumstances, it is important that bill payments are prioritised. When assessing which payments to make first, priority should always be given to mortgage or rent payments, followed by household bills such as council tax and utilities.

Unsecured debts such as credit cards, overdrafts and personal loans, although worrying when no offers of work have been received for a couple of weeks, should always take second place to paying for a place to live.

Regular income needed to get back on track
The only thing that provides any level of reassurance to either debtor or creditor is a regular income, even if only part-time. Creditors would be more open to extended payment arrangements if a consistent income was being received.

Zero hour contracts are widespread in Scotland, with industries including catering, hospitality and education using them to keep down operating costs, but at what expense to the economy in general?

Scotland Debt Solutions operate from offices throughout Scotland, and help Scottish residents to assess and deal with their financial situation.

John Baird

Insolvency Adviser

Tel: 0800 063 9250

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