British employers have spent two years absorbing a higher wage floor and a heavier Payroll Tax bill. Now the government has put a price on the next change. An impact assessment published on 12 August 2026 estimates that its zero-hours reforms could add between £350mn and £2.9bn a year to direct employer costs, with a central estimate of £1.1bn. Up to £1.2bn of the upper figure comes from one measure: paying staff when a shift is cancelled, cut short or moved at short notice. For businesses built on flexible rotas — pubs, shops, care homes, warehouses — that is not a rounding error. It is a structural change to how labour is bought and sold.

Inside the government’s own arithmetic

The figures come from the Department for Business and Trade, not a lobby group. That matters, because business organisations have spent a year arguing ministers were understating the bill. The assessment models a range of Options rather than a single policy, which is why the numbers span such a wide band. On the government’s own reckoning, the *net* cost to the economy — employer costs less the benefits flowing to workers — lands between £300mn and £1.4bn a year. The gap between scenarios is driven by design choices not yet made: how long the reference period runs, how many hours trigger a guaranteed-hours offer, and how much notice counts as reasonable. The consultation, *Make Work Pay: ending one-sided flexibility*, opened on 2 June 2026 and closes on 25 August 2026.

Three new rights, and why they bite

The Employment Rights Act 2025 does not ban zero-hours contracts. It does three other things. Workers who regularly work more than their contracted hours gain a right to be *offered* a contract guaranteeing those hours, measured over a reference period — the government’s working preference is 12 weeks. Employers must give reasonable notice of shifts and changes; the consultation floats one to four weeks for directly employed staff. And workers must be compensated when a shift is cancelled, curtailed or moved without adequate notice.

The rules reach beyond true zero-hours contracts. Low-hours arrangements — an eight-hour contract where someone routinely works thirty — are caught too, with a preferred qualifying threshold of 8 to 20 hours a week. Enforcement is split: the new Fair Work Agency polices short-notice payments, with penalties of 50 per cent of arrears capped at £5,000 per worker, while guaranteed-hours claims go to tribunals.

The timing problem nobody planned for

The Act received Royal Assent in December 2025 and is being switched on in stages. Day-one paternity leave and statutory sick pay from the first day of illness arrived in April 2026; tribunal time limits doubled to six months on 1 October 2026. On 1 January 2027 the unfair dismissal qualifying period falls to six months and fire-and-rehire dismissals become automatically unfair.

The zero-hours measures land during 2027, with no confirmed month, leaving employers designing rota systems for rules that secondary legislation has yet to settle. And it stacks on costs already banked. The National Living Wage rose 4.1 per cent to £12.71 an hour in April 2026; the rate for 18 to 20-year-olds jumped 8.5 per cent to £10.85. Employer national insurance has sat at 15 per cent above a £5,000 secondary threshold since April 2025.

Which sectors carry the load

Accommodation and food services has the highest concentration of zero-hours working of any industry, with retail, social care and logistics close behind. Work Foundation analysis of ONS data put the number on zero-hours contracts as their main Job at a record 1.23 million in early 2026, up 91,000 in a year.

The British Retail Consortium estimates retail absorbed roughly £5bn of extra employment costs in 2025 alone. Its February 2026 survey of retail finance directors found 84 per cent ranking employment costs among their top three concerns, up from 21 per cent seven months earlier. More than half said they would cut staff hours in response.

The listed names in the firing line

J D Wetherspoon (LSE: JDW) is the clearest read-across. The pub group reported a £28mn rise in wage costs in the 26 weeks to 25 January 2026 and has guided that national insurance and labour rate increases will cost roughly £60mn a year, with operating profit down 18.4 per cent over the half.

Greggs (LSE: GRG), which employs more than 33,000 people, reported 2025 sales of £2,151mn and underlying pre-tax profit of £171.9mn, down 9.4 per cent, with employment costs the main driver of about 5.5 per cent cost inflation. Whitbread (LSE: WTB), Compass Group (LSE: CPG), Tesco (LSE: TSCO) and Marks and Spencer (LSE: MKS) all run large variable-hours workforces, though none has published a costing of these measures. Compass, as a contract caterer, faces a particular wrinkle: its shift patterns follow client Demand it does not control.

What workers and consumers actually get

For workers the gains are real. A guaranteed-hours offer converts an unpredictable income into a mortgageable one, and compensation for a cancelled shift removes the cost of turning up for nothing. Offers can be declined without losing existing rights.

The risk is substitution. The BRC warns that raising the cost of hiring could shrink entry-level roles; youth Unemployment stood at 15.9 per cent in early 2026. Some retailers have signalled they may lean harder on agency labour — though ministers are consulting on extending the same protections to agency workers, closing that route.

Where the plan could unravel

The meaning of “reasonable notice” is unresolved, and tribunals will draw the line case by case. Compliance costs sit largely outside the headline estimate: the BRC argues retailers face rewriting HR and payroll systems at a cost running into hundreds of millions, and the Recruitment and Employment Confederation says the assessment undercounts process costs.

Kate Nicholls, chair of UKHospitality, called the cost “eyewatering”. The TUC counters that the high-end estimate overstates the position, since the point of the law is to stop cancellations happening at all.

The dates that matter next

Draft regulations should follow the consultation’s close, then commencement in 2027. Investors in labour-intensive businesses should watch where the hours threshold lands, whether the reference period is 12 or 26 weeks, and how cancellation payments are calculated.

A price tag still in motion

The £2.9bn figure is a ceiling, not a forecast, and the design choices that produce it remain open. The direction, though, is settled. Labour flexibility in Britain is being repriced, and the businesses that have leaned on it hardest will pay the most to keep it.