Zero-Hours vs Agency Contracts: What's the Difference in the UK?

A zero-hours contract is an arrangement where the employer is not obliged to provide any minimum number of working hours, and the worker is not obliged to accept any work offered. Pay follows the actual hours worked. According to Acas, there is no single legal definition, but this lack of guaranteed hours is the defining feature of the arrangement.

Crucially, the worker is engaged directly by the business. There is no third party involved. The employer sources, manages and pays the individual, and offers shifts as demand requires. This direct relationship is what most clearly separates a zero-hours arrangement from agency work, and it means every employer duty falls on the business itself.

One rule is often misunderstood: exclusivity clauses are banned. An employer cannot stop a zero-hours worker from working elsewhere, and a clause attempting to do so is unenforceable. The worker is free to take other shifts, even with a competitor. The Working Time Regulations 1998 also apply in full: zero-hours workers are entitled to daily and weekly rest periods and are subject to the same 48-hour maximum working week as any other worker.

An agency contract involves three parties rather than two. The worker has a contract with a recruitment agency, the agency has a contract with the hirer (the business where the work is done), but the worker has no direct contract with the hirer. This triangular structure is the heart of how agency worker contracts operate in practice.

In most cases the agency is responsible for paying the worker, deducting tax, and providing the written terms. The hirer directs the day-to-day work but does not employ the individual. That separation changes where obligations fall, which is why a hirer cannot simply treat an agency worker like a direct employee or assume the usual employer duties do not apply.

Agency work is also governed by its own dedicated rules, the Agency Workers Regulations 2010, which have no direct equivalent for zero-hours staff. These regulations create protections that exist only in the agency context.

The table below sets out how the two arrangements compare on the points that matter most to employers and workers.

Both groups are classed as workers at minimum, so a common floor of rights applies to each. The shared protections include:

• National Living Wage and National Minimum Wage. All hours worked must be paid at least the statutory rate — £12.71 per hour for those aged 21 and over from April 2026 (National Living Wage), and the applicable National Minimum Wage rate for younger workers.
• Paid holiday. Both accrue statutory annual leave of 5.6 weeks, calculated on the hours actually worked.
• Rest breaks. Daily and weekly rest entitlements under the Working Time Regulations 1998 apply in the same way as for other staff.
• Protection from discrimination. Equality law covers both arrangements in full, with no qualifying period.
• A written statement. Since April 2020, both are entitled to a written statement of particulars on or before day one.

Agency workers gain an extra layer of protection. Under the Agency Workers Regulations, after a 12-week qualifying period in the same role with the same hirer, they are entitled to equal treatment on pay, holiday and other basic conditions, as if they had been recruited directly. There is also no qualifying period for certain day-one rights, such as access to facilities and information about internal vacancies, which apply from the very start. You can see the fuller picture in this guide to UK temporary worker rights.

Understanding the trade-offs on both sides helps employers choose the arrangement that genuinely matches their operating model, and helps workers understand what they are signing up to.

For employers, the main advantage is direct control. You recruit who you want, manage the relationship yourself, and can scale hours up or down without notice periods or agency fees. The downside is that all employer obligations sit with you alone, from payroll and PAYE to holiday accrual and health and safety. There is also no guarantee that workers will be available when you need them.

For workers, the appeal is flexibility: the freedom to accept or decline shifts and to work for multiple employers at the same time. The significant drawback is income unpredictability. With no guaranteed hours, budgeting is harder, and some workers find this arrangement affects their access to mortgages or credit. Job security is lower than with a fixed or permanent contract, and scheduling can change at short notice.

For employers, the main advantage is outsourced complexity. The agency handles recruitment, payroll and compliance, and can provide specialist or short-notice cover quickly. The trade-off is cost: agency workers are more expensive per hour because the agency adds a margin. Hirers also retain health and safety responsibilities on site and must track the 12-week qualifying period carefully.

For workers, agency work can open access to a wider range of roles and employers. The agency manages administration and ensures pay is processed correctly. After 12 weeks, the equal treatment entitlement under the Agency Workers Regulations provides meaningful protection. The downside is less continuity: assignments can end abruptly, and income depends on the agency finding new placements.

The right model depends on control, cost and how the work is sourced. Zero-hours contracts suit businesses that want a direct relationship with a flexible pool of staff they recruit and manage themselves, such as hospitality or retail covering seasonal peaks. They give close control but place all employer duties squarely on the business.

Agency contracts suit short-notice or specialist cover where the business would rather outsource recruitment, payroll and compliance to an agency. They cost more per hour because the agency adds a margin, but they reduce administrative burden and shift much of the employer responsibility onto the agency instead.

If your real need is for ongoing, predictable work, neither may be the best fit. In that case it is worth weighing the trade-offs covered in this comparison of fixed-term and permanent contracts before defaulting to a flexible arrangement that may not match how the role actually works.

The model you choose changes where the legal duties sit, and confusing the two is where businesses get caught out. With a zero-hours contract, the business is the employer in full. That means you are responsible for paying at least the National Living Wage, calculating and providing holiday pay, issuing the written statement, operating PAYE, and meeting health and safety duties. There is no third party to share the load with.

With an agency contract, those duties are split. The agency typically handles pay, tax and the written terms, while the hirer is responsible for the day-to-day working environment, including health and safety on site and ensuring equal treatment begins after the 12-week qualifying period. Problems usually arise when a hirer assumes the agency has covered everything, or treats an agency worker as a direct employee without realising the AWR clock is already ticking.

A practical way to stay on the right side of the rules is to keep clear records for each arrangement:

Employment law in this area is changing significantly. The Employment Rights Act 2025 introduces a package of reforms that will reshape how zero-hours contracts and similar arrangements work in practice.

Two provisions are directly relevant to employers using flexible contracts. First, workers on zero-hours or low-hours contracts will have the right to be offered guaranteed hours that reflect the hours they have regularly worked, following a reference period. This does not ban zero-hours contracts outright, but it means employers can no longer keep workers on unpredictable terms indefinitely if a consistent working pattern has developed. Workers will be entitled to receive and respond to a guaranteed hours offer, and employers will need to manage that process carefully.

Second, the Act requires employers to provide reasonable notice of shifts, and to pay workers compensation where shifts are cancelled or curtailed at short notice. The policy intent is to end the practice of workers turning up for shifts that are then cancelled without pay. Eligible agency workers will be covered by equivalent protections.

These provisions are expected to come into force in January 2027, following a public consultation on the detailed implementation rules. Employers who already operate clean, documented processes for issuing and managing flexible contracts will find it significantly easier to adapt than those relying on informal arrangements.

The line between zero-hours and agency contracts comes down to one question: who employs the worker. Answer that, and the rest follows — from who pays and who carries compliance duties to which extra protections apply. Both models offer genuine flexibility, but only if the paperwork reflects the reality of the relationship on the ground.

For employers, the safest approach is to be clear about the arrangement from the outset, issue accurate written terms before work starts, and keep the statutory floor of rights firmly in view. With the Employment Rights Act 2025 introducing new obligations from January 2027, building good habits now is the cheapest form of future-proofing available.