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Lead department: Department for Business, Innovation, Science and Trade

Summary of proposal: Through the Employment Rights Act 2025, the government legislated for employers to provide eligible directly engaged workers with payment for shifts cancelled, curtailed, or moved at short notice. The options assessment notes that the consultation seeks views on the detailed design of the policy.

Submission type: options assessment

Legislation type: secondary

RPC reference: RPC-DBT-26159-OA(1)

Date of issue: 13 July 2026

RPC opinion rating

As originally submitted the options assessment (OA) was not fit for purpose. The department has now expanded the longlist and strengthened the justification for shortlisted options.

Final impact assessment submission required

Under the Better Regulation Framework (page 40) independent scrutiny of final impact assessments (IAs) is required for measures with very high anticipated impacts to assure ministers and Parliament of the robustness of the analysis for such large measures.

Specifically, final-stage RPC scrutiny is needed for any regulatory provision with an equivalent annual net direct cost to business (EANDCB) of ±£100 million or more and where at least one of the following conditions is met:

a) the RPC opinion of the scorecard elements of the options assessment (OA) received a weak or very weak rating

b) the RPC opinion of the monitoring and evaluation plans in the OA received a weak or very weak rating

c) the measure falls within an exclusion category (apart from the building safety exclusion) and has therefore not previously been subject to OA scrutiny

This OA covers a proposal with an EANDCB of ±£100 million or more and meets condition a). It will therefore require resubmission at final IA stage. This OA is still considered fit for purpose, and the department has provided sufficient quality evidence and analysis in the green-rated areas.

RPC opinion summary

Rationale: Green

The options assessment (OA) sets out a clear problem supported by evidence on one-sided flexibility, short-notice scheduling, income insecurity and wellbeing. The department has strengthened the evidence base by providing more information on the characteristics of affected workers and new survey evidence. The department should improve its objectives to a SMART format, so they are measurable and time bound. The final impact assessment (IA) should identify and evidence where employer market power in the labour market and lack of outside options for workers are material, rather than assuming they apply uniformly.

Identification of options: Green

The OA identifies a range of implementation options, including notice periods, payment structures, and eligibility thresholds, with separate treatment for agency workers. The department has strengthened the longlist by considering exceptions to payment requirements, explaining why sector-specific approaches were discounted, broadening the range of eligibility thresholds and providing more discussion on enforcement options.

Justification for preferred way forward: Green

The OA does not name a preferred option as the department is consulting. It provides a range-based assessment of impacts, uncertainty, risks and trade offs. The IA should provide a more comprehensive appraisal of the selected parameters, including interactions with the related zero-hours measures, and show which costs are incremental.

Regulatory scorecard: Weak

The OA estimates a Net Present Social Value range of -£510 million to -£4.2 billion and Equivalent Annual Net Direct Cost to Business of £20 million and £1.3 billion. The OA does not sufficiently assess growth impacts, or whether the quantified costs capture only administration and planning burdens, while leaving the substantive economic cost of reduced scheduling flexibility largely unassessed. The final IA should assess employer behavioural responses, labour market risks, and impacts on productivity and growth, and distinguish administrative burdens from substantive compliance costs.

Monitoring and evaluation: Satisfactory

The OA provides a high-level monitoring and evaluation plan, including a post implementation review commitment, stakeholder engagement, survey options and evaluation questions. The IA should define baselines, metrics, data sources and governance arrangements more clearly.

Response to Initial Review Notice

The RPC issued an Initial Review Notice because the option set was not sufficiently clear, targeted or developed to inform an effective consultation. In response, the department has expanded the longlist and strengthened the justification for shortlisted options. The revised OA now better considers targeting, operational need, enforcement, unintended consequences, factors affecting reasonable notice, agency-worker treatment and hirer liability. It provides a clearer explanation of how the consultation will test proportionality, coverage and avoidance risks.

The department has strengthened the evidence base by providing additional evidence on the characteristics of workers affected by short-notice changes, including evidence from a recent survey. The revised OA includes further consideration of possible exceptions to payment requirements, explains why sector specific approaches have not been taken forward, expands discussion of enforcement arrangements and provides a more transparent explanation of key assumptions, evidence gaps and uncertainty. The revised OA has still not properly addressed the issues the RPC highlighted around growth. The final IA still needs to assess the wider economic impacts of the policy, including effects on employer flexibility, labour market risks, productivity and growth.

Summary of proposal

The government is proposing a package of measures to tackle one-sided flexibility, ensure that all jobs provide a baseline of security and predictability, and end exploitative zero hours contracts. The package consists of three measures, with the highlighted third measure being the subject of this OA:

• a right to guaranteed hours, where the number of hours offered reflects the hours worked by a qualifying worker during a reference period
• a right to reasonable notice of shifts
• a right to payment for shifts cancelled, curtailed, or moved at short notice - this opinion addresses this measure

Through the Employment Rights Act 2025, the government legislated for employers to provide eligible directly engaged workers with payment for shifts cancelled, curtailed, or moved at short notice.

The OA notes that the consultation seeks views on the detailed design of the policy, including how short notice is defined, whether a separate very short notice category should be introduced, how payments should be calculated, and which workers should be eligible. It explains that a range of options is presented across these parameters, including different treatment for agency workers to reflect the nature of agency work. The department states that it has not identified preferred options at this stage, as the intention is to gather stakeholder evidence and refine the policy design before final decisions are taken.

The department explains that the policy is intended to improve income security and predictability for workers on variable hours contracts, while maintaining flexibility for employers. It reports indicative monetised impacts, with an estimated Net Present Social Value of between -£510 million to -£4.2 billion over ten years and an Equivalent Annual Net Direct Cost to Business of between £20 million and £1.3 billion, noting that these estimates are subject to significant uncertainty and depend on final policy parameters and behavioural responses.

Rationale

Problem under consideration

The OA states that short-notice cancellation, movement or curtailment of shifts creates income instability and unpredictability for workers on variable hours contracts. It draws on survey evidence indicating that workers on insecure contracts regularly experience unexpected cancellations, often with limited notice and limited compensation.

The department notes that this reflects wider one-sided flexibility, whereby employers retain discretion over scheduling while workers bear the financial and personal consequences, including lost income, unrecoverable childcare and travel costs, and increased reliance on debt. The OA links these outcomes to broader wellbeing impacts and reduced ability for workers to plan their finances and lives.

The department has strengthened the assessment by providing additional evidence on the characteristics of workers most likely to be affected. The OA draws on evidence from the Competition and Markets Authority, but the final IA should not treat market power or information asymmetry as uniform across all affected work. It should explain how and to what extent workers’ outside options, employer bargaining power and information asymmetries vary by sector, location, business model and worker group, and show how that evidence supports the final proposals.

Argument for intervention

The OA explains that the problem arises from a combination of market failures, including monopsony power, negative externalities and information asymmetry, which allow employers to transfer risk to workers. It argues that, in the absence of regulation, employers may underinvest in workforce planning and continue practices that impose costs on workers, and that compensation for short-notice changes would help internalise these costs and incentivise improved scheduling practices.

The OA provides a clearer explanation of the market failures underpinning intervention and the channels through which compensation requirements may improve scheduling practices. The final IA should continue to test the strength of these mechanisms and the extent to which the intervention addresses each identified market failure.

The department sets the proposal within earlier policy development, including the Taylor Review, the Low Pay Commission and the government’s Good Work Plan consultation on one-sided flexibility in 2019. The OA explains why the act has already provided the legislative basis and why the focus at this stage is on implementation choices in secondary legislation.

Objectives and theory of change

The OA states that the policy aims to rebalance labour market flexibility, improve predictability of working patterns and increase income security for workers on variable hours contracts. It also seeks to encourage improved workforce planning and maintain a level playing field between employers. While these objectives are relevant, they are expressed at a high level and are not consistently measurable. The IA should convert these objectives into SMART terms, including clear baselines, metrics and timeframes for assessing improvements in notice and income stability.

The department presents a theory of change linking the introduction of compensation requirements to improved scheduling practices, reduced income volatility and enhanced wellbeing, with potential downstream benefits for productivity and economic growth. However, the OA would be strengthened by developing this from a logic model into a fuller theory of change, setting out the assumptions and supporting evidence for each causal step, identifying which links are well evidenced and which are more uncertain, and making the intended outputs, outcomes and impacts assessable for monitoring and evaluation.

Identification of options

Identification of longlist

The OA states that the Employment Rights Act 2025 has already established the broad regulatory framework, and remaining policy choices concern how the secondary legislation should implement the right.

The department considers options for defining short notice, introducing a separate very short notice period, determining payment approaches, setting payment percentages, establishing eligibility thresholds and defining enforcement arrangements. It also considers different treatment for agency workers, potential exceptions where payment may not be appropriate.

The OA explains the rationale for including these options, including balancing worker security and employer flexibility. The IA should present more clearly how the longlist will be reduced to a shortlist using structured criteria, including how interactions between parameters will be assessed. The OA should present the appraisal of the final longlist and shortlist in a more systematic form, showing how each option was tested against SMART objectives and critical success factors.

Consideration of alternatives to regulation

The OA states that non-regulatory options were considered, but discarded because they would not achieve the intended outcomes. The department explains that guidance or voluntary action would be unlikely to have sufficient force for employers to change behaviour or create a level playing field. It also explains that an outright ban on variable contracts would be poorly targeted because flexible work can benefit both workers and employers in some circumstances.

The department is clear that the current consultation is not reopening whether to legislate, but how the statutory right should be applied.

Justification for shortlisted options

The OA states that shortlisted options represent those consistent with policy objectives and suitable for consultation. These include bounded ranges for notice periods, payment rates and eligibility thresholds designed to capture trade-offs between flexibility and security. The department explains that ranges are chosen to reflect existing practice and stakeholder considerations, and that no preferred options are presented to allow evidence collection. The department includes a brief statement on international comparators, but this could be developed further to inform the ranges taken forward.

The department has strengthened the justification for options by providing additional discussion of exceptions, avoidance risks, operational constraints and enforcement arrangements. It also explains why sector-specific approaches were not taken forward, noting challenges around defining sectors consistently, maintaining a level playing field and avoiding distortions.

The OA would be strengthened by a more structured longlist-to-shortlist assessment. The IA should use critical success factors, or an equivalent structured appraisal, to show how the final shortlist and preferred parameters were selected after consultation. The IA should use explicit critical success factors to demonstrate how the final package is selected and why it achieves a proportionate balance across competing objectives.

Small and micro business assessment

The OA includes an assessment of small and micro business impacts. It states that small and micro businesses are likely to be disproportionately affected because they may lack dedicated HR functions, have weaker financial resilience and rely more heavily on flexible scheduling to manage demand. The OA cites evidence at an hours threshold of 28 hours per week, 51% of employee jobs in micro businesses are potentially in scope, compared to 30% of those in small businesses, 22% of those in medium-sized businesses, and 27% of those in large businesses.

The department explains why exempting small and micro businesses would significantly undermine the objectives. It notes that a significant proportion of workers within the hours thresholds work in small and micro businesses, and that an exemption could create a two-tier labour market.

This is a reasonable explanation for not applying an exemption. However, the OA would be strengthened by a clearer provisional estimate of the share of total business costs expected to fall on small and micro businesses and the policy benefits, or affected workers, that would be lost under a full exemption.

The OA outlines potential mitigations, including phased implementation, guidance and stakeholder engagement. The IA should set out the final mitigation package for small and micro businesses, and explain why any residual disproportionate burden is justified by the policy objectives.

The OA would also be improved by distinguishing more clearly between small and micro businesses and medium-sized businesses, and by explaining whether medium-sized businesses face similar or different proportional impacts and mitigation needs.

Justification for preferred way forward

Identifying impacts and scale

The OA does not identify a single preferred option, but provides a range-based assessment of impacts across the options being consulted on. It estimates that the Net Present Social Value is between -£510 million to -£4.2 billion over a 10-year appraisal period, this is negative as the benefits remain unquantified. It estimates the Equivalent Annual Net Direct Cost to Business at between £20 million and £1.3 billion per year.

The main quantified costs relate to cancellation payments, familiarisation and workforce planning costs for businesses. The final IA should test how the selected parameters affect employer flexibility, labour market risks and its associated costs, productivity and be explicit about expected impact on growth. It should distinguish administrative burdens from substantive compliance costs, setting out how the evidence base has tested and quantified these risks.

The department explains that the principal unquantified benefits are to workers through greater predictability, income security, reduced stress and lower costs associated with last-minute travel or childcare. It notes potential employer benefits from improved workforce planning, retention and productivity. The final IA should give a fuller account of the scale of benefits and ideally quantify and monetise these impacts where possible. The IA should provide central estimates once preferred options are selected and refine key assumptions using consultation evidence.

Counterfactual and baseline

The OA defines the counterfactual as the continuation of the current situation in which employers can cancel or change shifts at short notice without compensation, and assumes that related rights to guaranteed hours and reasonable notice of shifts are not implemented in the Business as Usual scenario. While this provides a clear basis for estimating incremental impacts, the treatment of interactions across the wider zero-hours package is not resolved.

The IA should adopt a consistent counterfactual across the measures and clearly demonstrate how interactions are treated, including avoiding double-counting of set up and workforce planning costs. It should also explain how the presence of related measures would affect the number of workers in scope, employer behaviour and the marginal impacts of each intervention. This is necessary for a robust assessment of the overall package.

Evidence and data

The OA draws on a broad evidence base, including survey data, administrative datasets and academic studies. It uses Living Wage Foundation evidence on the prevalence of short-notice cancellations, Chartered Institute of Personnel and Development (CIPD) survey data on employer practices, Annual Survey of Hours and Earnings (ASHE) estimates to proxy the number of jobs within different hours thresholds, and Association of Labour Providers evidence on agency workers, alongside research on wellbeing and productivity impacts. The use of ASHE is explained as an employer-reported proxy for basic hours, while the department acknowledges that basic hours are not necessarily guaranteed hours.

The OA cites evidence on scheduling stability and wellbeing to support growth and productivity impacts, but this evidence does not directly correspond to the mechanism of post-hoc cancellation compensation. The IA should ensure that cited evidence aligns with the specific intervention or clearly explain the causal pathway.

The department has strengthened the assumptions log by adding explanatory commentary for individual assumptions, improving transparency around the rationale for robustness and sensitivity ratings and the underlying evidence used. The final IA should show how consultation has tested the assumptions that input into the monetised costs.

The department has strengthened the evidence base by incorporating new survey evidence, complementing existing external research and providing additional information on the prevalence and impacts of short-notice cancellations and changes to shifts.

Selection of the preferred option

The OA does not select a preferred option for the main parameters because the department is consulting. The department explains that stakeholder evidence, commissioned research and consultation responses will inform the final IA. The OA therefore justifies the preferred way forward as consulting on a bounded set of options, rather than prematurely selecting a single parameter package. This is reasonable at OA stage, given that the key choices concern marginal trade-offs between different secondary-legislation parameters.

The final IA should provide a full comparative appraisal of the selected parameters against the alternatives. It should explain the trade-offs between worker security and employer flexibility, and why the selected package is proportionate under the Better Regulation Framework.

Regulatory scorecard

Part A

The OA does not provide a sufficiently balanced assessment of the potential growth impacts. The quantified costs capture only administration and planning burdens, while leaving the substantive economic cost of reduced scheduling flexibility largely unassessed. The final IA should assess how the selected parameters may affect employer flexibility, labour market risks and its associated costs, employment composition, productivity and be explicit about expected impacts on growth. It should distinguish administrative burdens from substantive compliance costs.

The OA’s scorecard describes the overall impact on total welfare as uncertain because the policy transfers risk from workers on variable-hours contracts to employers. It reports an indicative NPSV range of -£510 million to -£4.2 billion, driven by cancellation payments and workforce planning costs for businesses. The scorecard states that unquantified worker benefits are significant but uncertain. The OA would be strengthened by a clearer account of the scale of benefits. The IA should revisit this once the final package is selected, including through partial monetisation, break-even or scenario analysis where full monetisation is not feasible.

The OA should ensure consistency in its economic rationale by reconciling the identification of significant market power with the expectation of only modest costs and limited labour market effects. The OA should clearly explain how these arguments fit together: if employers currently have enough power to maintain these practices, fixing them would be expected to lead to more noticeable costs and changes in behaviour than the OA suggests.

The OA describes business impacts as negative overall, with monetised costs including a one-off familiarisation and implementation costs, ongoing workforce planning costs and cancellation payments. The department reports an EANDCB of between £20 million and £1.3 billion. The EANDCB range reflects a high degree of underlying uncertainty about key parameters and behavioural responses. The OA presents a table to show which assumptions have been used in the modelled cost estimates. The final IA should narrow this range materially through better evidence and parameter selection, and demonstrate which assumptions drive the spread.

The OA would also be strengthened by going beyond business size and providing a fuller distributional assessment by sector and business model. This should include sectors and business models where demand is volatile, current use of variable hours contracts is high, timeliness is important and margins are tight. It should also explain, where possible, where employers are already voluntarily providing more secure contractual arrangements and where current practice is furthest from the intended regime.

The OA describes household impacts as positive because workers are expected to receive greater predictability and security over their hours, reducing stress and helping with financial planning, childcare and travel. The department provides an indicative figure for the equivalent annual net direct cost to households (EANDCH) of between -£5 million and -£1.2 billion, based on the payments made to employees from businesses that have cancelled shifts. The department has not monetized any other household impacts. The OA would be strengthened by a more balanced assessment of household impacts, including potential adverse indirect impacts. The final IA should consider whether highly flexible work arrangements can benefit some workers, including through higher pay, entry-level experience or access to work that might otherwise not be available.

The department has improved the presentation of the regulatory scorecard by providing additional explanation of the treatment of transfers and the relationship between business costs and household benefits.

Part B

The OA assesses the business environment impact as potentially working against ease of doing business, particularly for sectors where the use of these variable hours contracts is frequent. The final IA should provide an assessment of growth impacts, rather than relying on general productivity arguments, and explain productivity effects, reduced flexibility, lower labour demand and changes in employment composition.

The OA assesses international considerations as neutral. It states that the measure is not expected to have a direct impact on trade and investment because the affected contracts are mainly used in non-traded sectors such as retail, hospitality, health and social care. It states that the increase in labour costs is modest and and therefore the impact on export and import competitiveness is likely to be negligible.

The OA assesses the impact on natural capital and decarbonisation as neutral but would benefit from including additional narrative to explain why this is the case, including consideration for whether a reduction in unnecessary commutes could have an environmental impact.

Monitoring and evaluation

The OA commits to a post-implementation review within 5 years of the secondary legislation coming into effect. The plan identifies accountability, learning and informing allocative decisions as purposes of monitoring and evaluation, which provides a reasonable high-level framework.

The department identifies potential evidence sources and approaches, including regular stakeholder engagement, statistically representative surveys of individuals and employers, possible focus groups, ONS data on zero-hours and temporary contracts, ASHE, and relevant think-tank or business surveys. The department notes ongoing efforts to improve the evidence base, including commissioned research to establish baselines and fill gaps. This provides a reasonable foundation. The IA should develop a more detailed plan, including defined metrics, named data sources, timelines and governance arrangements to ensure robust evaluation.

The OA sets out potential evaluation questions, including whether the measure increases predictability of working patterns, improves income security and delivers its intended outcomes, as well as whether it gives rise to unintended consequences. It also proposes assessing economic impacts, including costs to employers and benefits to workers and businesses. The IA should develop this into a comprehensive monitoring and evaluation framework, including clearly defined baselines, named data sources, reporting frequency, governance arrangements and a transparent process for feeding evaluation findings into future policy refinement.

The IA should structure the evaluation framework around HM Treasury’s Magenta Book process, impact and value-for-money evaluation strands, set out a credible approach to causal attribution, and commit to an early interim assessment of administrative and familiarisation costs to test delivery assumptions and inform progress against wider regulatory burden reduction objectives.