Outlawing zero-hours contracts could impose an annual cost on businesses of up to £3 billion, according to new Government analysis.
However, the proposed workplace reforms are nevertheless expected to “support growth” through the improvement of conditions for staff, an impact assessment published on Wednesday states.
The total direct expense to employers resulting from the ban is estimated to lie between £350 million and £2.9 billion each year, with figures showing an “indicative central” baseline of £1.1 billion.
Ministers are consulting on whether to extend the measures to anyone working 48 hours a week, though official preference remains a threshold between eight and 20 hours.
Ministers have defended the reforms by arguing they will help millions of workers who face uncertainty over their weekly hours and earnings, and unions have said a ban will help offer greater security in the event of shifts being cancelled at the last minute.
In its analysis, the Government said the proposals would mean workers were expected to receive payments of between £5 million and £1.2 billion because of the right to payments for shifts getting cut or moved at short notice.
It said the measures are expected to “support growth through improved worker wellbeing and engagement”, which research suggests is linked to increased productivity.
“There may also be wider benefits due to higher wellbeing and labour market participation. Stress, depression and anxiety accounted for 22.1 million lost working days in 2024/25, equivalent to around £6.5 billion in lost output,” the paper added.
But retailers said the potential costs outlined on Wednesday risk “a hammer blow to young people’s job prospects”.
Helen Dickinson, chief executive of the British Retail Consortium, said: “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.
“These estimates also only tell part of the story, as retailers will have to fork out hundreds of millions of pounds to update their HR and payroll systems.”
She said the costs “could not come at a worse time” after the rise in employer’s national insurance contributions.
“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,” she said.
The British Chambers of Commerce also voiced concern about the analysis and criticised the timing of its publication “so late in the consultation process”.
Kate Shoesmith, director of policy at the BCC, said: “The increased cost to businesses of the proposed changes to zero hours contracts will be a further hammer blow for many firms struggling to keep their heads above water.
“The Government had previously claimed that the cost of the entire Employment Rights Act for business would be £1 billion but this research clearly blows that out of the water.”
She added: “We are already facing a youth unemployment crisis – now is not the time to make it even more costly for employers to hire.
Kate Nicholls, chairwoman of UKHospitality, said: “The Government should be incentivising employment in hospitality, as a sector that employs the most young people, most part-time workers and the most non-graduates.
“Instead, these reforms add yet more cost, at a scale that far outweighs the cost benefits for employees.
“It’s critical the Government works with sectors like hospitality to reduce the cost of employing people and incentivise employment, rather than increasing costs and risking further lost job opportunities.”
Neil Carberry, chief executive of the Recruitment and Employment Confederation, voiced concerns that the assessment “undercounts the compliance and process costs businesses will face”.
“Rather than increasing job security, the proposals risk weakening a vital and successful part of the labour market that supports workforce participation, especially in sectors such as hospitality, retail and healthcare, and delivers economic growth,” he said.
“We are calling for more talks with Government to ensure that any final policy is coherent, proportionate and capable of operating effectively within the realities of the agency labour market.”
A Trades Union Congress spokeswoman said: “The Employment Rights Act will deliver an estimated £10 billion boost to the economy – that far outstrips any costs.
“Let’s stop the scaremongering. These are common sense reforms, which bring us closer to the European mainstream.”
A Government spokesperson said: “We are absolutely committed to ending exploitative zero hours contracts, where workers bear all the financial risk when hours, shifts and earnings are unpredictable.
“These reforms will give workers in every postcode greater income security and predictability of hours and while no final decisions have been made, we’re consulting to get the detail right and ensure this works in the real world.”