- The government estimates the reforms could cost employers between £350m and £2.9bn a year.
- Officials say the changes could generate up to £10bn in wider economic benefits.
- The number of people on zero-hours contracts reached 1.23 million last December.
Labour's planned zero-hours contract reforms could leave businesses facing as much as £2.9bn in additional costs each year, according to the government's own analysis, but officials also estimate the changes could deliver up to £10bn in wider economic benefits.
The final bill is still far from settled. The government is consulting on how many hours workers should be covered by the new rules, with officials considering a threshold somewhere between eight and 20 hours a week. Unions have called for the rules to apply much more widely, including workers putting in up to 48 hours a week.
That choice could make a substantial difference to employers' costs. The government's central estimate puts the overall annual cost at around £1.1bn, while the lowest estimate is £350m and the highest is £2.9bn.
So the headline £2.9bn figure represents the upper end of a range rather than a bill businesses are certain to face.
The reforms are intended to give workers on variable-hours contracts greater certainty over their working patterns. Under the proposed changes, employers would have to offer guaranteed hours to eligible workers based on the hours they regularly work.
The government is also proposing compensation when shifts are cancelled at short notice.
That could be particularly significant for industries such as hospitality and retail, where businesses often use zero-hours workers to respond quickly to changing demand.
The £2.9bn question
The government's impact assessment acknowledges that employers could face higher administrative costs and lose some flexibility when staffing levels need to change.
The biggest individual cost at the upper end of the estimate would come from compensation for cancelled shifts, accounting for around £1.2bn.
Businesses could also have to change payroll systems and processes. The British Retail Consortium has warned that retailers alone could face hundreds of millions of pounds in payroll system costs.
The British Chambers of Commerce has described the potential costs as disproportionate, with its director of policy, Kate Shoesmith, reportedly warning that the reforms could make it more expensive for employers to hire at a time when youth unemployment is already a concern.
But the government argues that the calculation cannot be based only on what companies spend.
Its analysis estimates that greater job security could improve workers' wellbeing and productivity, generating an economic benefit of around £10bn. Officials also said some benefits could not be given a financial value, meaning the assessment does not capture the full impact of the reforms.
The Trades Union Congress has taken a different view of the cost. It has argued that most of the additional expense would arise only when employers cancel shifts at short notice, which is precisely the behaviour the reforms are intended to discourage.
A TUC spokesperson reportedly said the purpose of the legislation was to give variable-hours workers greater security and that employers providing stable working arrangements would have little to fear.
That leaves the government with a difficult calculation. The more workers the rules cover, the greater the cost to businesses could be, but limiting the threshold too much could reduce the number of workers who actually gain protection.
A growing workforce on uncertain hours
The debate comes as the number of people working on zero-hours contracts has reached a record level.
Official figures showed 1.23 million people were on zero-hours contracts in December 2025, an increase of 91,000 over the previous year.
For employers, the attraction is flexibility. A company can bring workers in when demand rises without guaranteeing a set number of hours every week.
For workers, that flexibility can work both ways. Some may value the freedom to choose when they work, while others can be left uncertain about how much they will earn from one week to the next.
Skills Minister Baroness Jacqui Smith reportedly said the government would look carefully at how the reforms are introduced, arguing that it was unfair for someone to be bound by a contract without knowing whether they would actually be offered work.
The government has not yet settled the final hours threshold, meaning the £2.9bn figure is not necessarily the cost businesses will ultimately face.
That decision could determine whether the reform becomes a relatively limited change affecting a smaller group of workers or a much broader shake-up of flexible employment across sectors that depend heavily on variable staffing.
For businesses, the question is how much flexibility they are prepared to give up. For workers, it is whether the new security will be worth the changes employers may make in response.
And for the government, the calculation is even simpler: how much should businesses pay to make insecure work more predictable?
