Proposed reforms to zero-hours and similar contracts could cost employers up to £2.9 billion a year, according to new government analysis, as the British Retail Consortium (BRC) warns that the measures could add further pressure to retailers already facing rising employment costs.
The government estimates that the direct cost to employers of the reforms could range from £350 million to £2.9bn per year, depending on the options ultimately adopted, with an indicative central estimate of £1.1bn.
Responding to the publication of the analysis, BRC chief executive Helen Dickinson said the scale of the costs raised “serious questions” about whether the guaranteed hours reforms would deliver value for workers.
“The scale of these costs raises serious questions about whether the guaranteed hours reforms will actually deliver value for workers, with the cost to employers appearing hugely disproportionate to the benefits for employees,” she said.
Dickinson also argued that the government’s estimates did not capture the full cost to retailers, claiming businesses would have to spend “hundreds of millions of pounds” updating HR and payroll systems.
She said the additional costs came at a difficult time for retailers, following what the BRC describes as a £6.5bn increase in employment costs over the past two years from higher National Insurance Contributions and the National Living Wage, alongside other costs arising from the Employment Rights Act.
The BRC warned that further cost pressures could affect employment opportunities, particularly for younger workers.
“Adding further costs 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,” Dickinson said.
The Federation of Small Businesses (FSB) also criticised the proposals, warning that they could contribute to higher unemployment and make it harder for people to enter work.
Tina McKenzie, interim national chair of the FSB, said the government had failed to quantify how many people could be left out of work and claiming benefits as a result of the reforms, while small businesses were already facing a fall in payroll numbers.
“With more than 150,000 fewer people on payrolls than when Labour came to power, small businesses have been hoping that the new government would follow the prime minister’s lead and start a more positive conversation with businesses – not sneaking out a multi-billion pound cost to business without even bothering to quantify the number of people who will be left out of work claiming benefits as a result of policies that make no sense,” she said.
McKenzie argued that employing people without guaranteeing a set number of hours was “part and parcel” of how many people enter work, and called on ministers to pause the reforms.
“If the new government is going to be able to look those seeking work in the eye, it needs to pause these wrong-headed reforms before they damage workplaces, workers, and those out of work. Ministers should take political ownership to find a positive-sum solution. Small businesses are keen to give the new Government a chance, but not to allow the last jobs horror show to repeat itself.” McKenzie said.
The government's analysis says the reforms will increase administrative costs and reduce flexibility for employers, with the greatest effects expected in sectors where variable hours and short-notice working are common, including retail, hospitality, arts and entertainment, administrative and support services, education, and health and social care.
The package covers a proposed right to guaranteed hours, reasonable notice of shifts, and payments where shifts are cancelled, moved or curtailed at short notice.
Under the government's indicative central scenario, the right to guaranteed hours would apply at a threshold of 16 hours per week, while the reasonable-notice and short-notice payment rights would have a 28-hour threshold.
The analysis estimates that the direct annual cost of the guaranteed-hours right could range from £100m to £450m, while the reasonable-notice requirement could cost between £240m and £1.2bn. Payments for cancelled, moved or curtailed shifts could cost between £20m and £1.3bn.
Meanwhile, separate research from RSM UK found that almost half of retailers are planning to increase their use of agency workers as proposed changes to zero-hours contracts threaten to increase the cost of flexible labour.
However, RSM warned that switching to agency workers may not allow retailers to avoid the new requirements. The proposed right to guaranteed hours could also apply to agency workers in certain circumstances, while the end user could potentially retain liability for compliance.
The government says the reforms are intended to address “one-sided flexibility”, where workers bear the risks of unpredictable hours and income while employers benefit from flexible arrangements.
Its analysis found that 53 per cent of workers in insecure work report that income variability affects their ability to cover essential expenses, while 58 per cent would like consistent and guaranteed hours matching their usual working patterns.
The consultation on the reforms closes at 11:59pm on 25 August 2026.