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Zero hour contracts and employer flexibility: the role of forecasting

07 August 2013

Employers, say the Institute of Directors (IoD), need zero hour contracts to meet the organisation's varying demand. But much of demand is predictable - this includes hourly, daily and weekly seasonal patterns, holidays and some special events.

by Robert Fildes
Distinguished Professor and Director of the Lancaster Centre for Forecasting

Companies using such contracts include McDonald’s, Wetherspoon, Subway and Sports Direct, not to mention Buckingham Palace. But much of demand is predictable – this includes hourly, daily and weekly seasonal patterns, holidays and some special events. There is no excuse for only offering such contracts other than managerial incompetence and a willingness to pass on risk to those least likely to be able to cope with it in the work force. Of course some workers will prefer such contracts – most won’t, especially when they preclude benefits such as sick pay.

What the companies should be doing is using sensible forecasting methods to estimate base demand and deliver contracts that motivate its workforce but at the same time protect costs. Comments such as that from the IoD show a level of wilful ignorance in defending the indefensible.. And it’s hardly reassuring to learn that neither the head of regulator policy at the IoD, nor many major UK companies, seem to have understood how forecasting linked to careful planning can cope with the problem of demand uncertainty.

Looking at past demand data it is possible to produce reliable forecasts, with measurable uncertainty. Statistical baseline forecasts can capture any structure in the data, while expert judgemental adjustments can be used for extraordinary circumstances. Subsequently, using such forecasts, it is possible to plan resources for any given level of uncertainty. Forecasting research has established best practices as to how to produce such forecasts and how to cope with uncertainty. It’s time they were implemented in these companies. The Centre is happy to help out, of course!