A zero-hour contract is a work arrangement where the employer doesn't guarantee any specific number of hours to the contractor or employee. The company can call up the contractor when they need them, and the contractor only gets paid for the hours they actually work. Contractors can also turn down work if they want to.

Think of it like having someone "on call" – you leverage them when you need them, but there's no promise of regular work.

When are zero-hour contracts used?

For startups and agencies, zero-hour contracts typically come into play when you've got unpredictable workloads or rapid scaling needs.

Let's say you run a growing startup that's testing new markets. You might need customer support coverage for different time zones, but you're not sure about the exact volume of tickets. Zero-hour contracts let you flex your support team up or down based on actual demand.

Another common scenario is when agencies need specialized talent—like a UI expert or copywriter—but don't have enough consistent work to justify a full-time hire. They can bring these pros in just when client projects need them.

Advantages of zero-hour contracts

For fast-growing companies and agencies, zero-hour contracts can be a powerful tool for managing growth and uncertainty. While they're not right for every situation, they offer specific advantages that align well with the dynamic needs of modern businesses

Financial Control: You can keep your burn rate manageable by matching labor costs directly to revenue. This is especially crucial for service businesses where project scope and timing can vary wildly. You maintain the flexibility to scale costs up or down based on actual client work.

Quick Market Response: When opportunities arise - like a sudden client project or market opening - you can move fast without the lengthy full-time hiring process. This agility lets you test new services or markets without committing to permanent overhead.

Talent Flexibility: You can bring in specialized experts exactly when you need them. If your agency lands a major UI overhaul project, you can tap into high-end design talent for just that project, rather than keeping expensive specialists on payroll year-round.

Risk Reduction: For early-stage companies and growing agencies, preserving cash and reducing fixed costs is crucial. Zero-hour contracts let you expand your team without taking on the long-term financial commitments and legal obligations that come with full-time hires.

Disadvantages of zero-hour contracts

Talent Quality Takes a Hit: Top performers typically want stability and clear career paths. If you're building something innovative or need highly skilled people, they'll likely choose companies offering regular hours over zero-hour arrangements. Your best talent might jump ship when a stable opportunity comes along.

Team Culture Suffers: When people don't know if they'll be working next week, it's hard to build a strong culture. Think about it - how can someone fully commit to your vision or contribute their best ideas if they feel like a temporary fix? This really matters in creative and tech fields where culture drives innovation.

Hidden Business Costs: While the immediate savings look good, you might lose more in the long run. Training new people repeatedly, inconsistent quality of work, and time spent constantly coordinating with a rotating workforce can eat into your efficiency. For agencies where client relationships matter, this inconsistency can damage your reputation.

Legal and Compliance Risks: As your company grows, complex employment laws come into play. Different states have varying rules about predictive scheduling and employee classification. Getting this wrong can lead to costly legal issues down the road.

However, these challenges shouldn't stop you from considering zero-hour contracts if they truly fit your business model. The key is being intentional about when and how you use them, while staying focused on building a sustainable core team.

Making zero-hour work for both sides

Zero-hour contracts work best when they create value for both companies and contractors. Start by setting clear expectations about work availability and communication timelines. Give contractors reasonable notice for upcoming work, ideally a week ahead when possible. This helps them plan their schedule while keeping your workflow flexible.

Create simple systems for defining project scope and deliverables. When contractors know exactly what's expected, they can work efficiently and deliver quality results. Regular feedback helps maintain work standards and builds stronger working relationships, even with varying hours.

Track performance consistently, even across irregular work periods. This helps identify your most reliable contractors and gives them incentive to prioritize your projects. Consider offering your top performers first access to new projects or paths to more regular work. This balance of flexibility and opportunity keeps both sides engaged and productive.

Are zero-hour contracts legal in the United States?

While there's no specific law banning them, employment relationships in the US are shaped by federal and state labor laws.

Most US companies handle variable work needs through part-time employment, temporary contracts, or freelance arrangements. Each state has its own rules about scheduling, minimum hours and predictive pay - especially for retail and service workers.

For example, California, New York and Oregon require employers to provide advance notice of schedules and pay for last-minute changes. These laws affect how flexible work arrangements can be structured.

Before implementing any zero-hour style arrangement, you'll need to check your specific state's requirements. Working with a platform like Thera to hire, and onboard your contractors will make sure you're following all local regulations.

Managing zero-hour contractors while staying compliant

Running zero-hour contracts in the US requires careful attention to labor laws. First, be clear about worker classification - are they truly independent contractors or actually employees? This affects everything from tax withholding to benefits requirements.

Set up a solid time tracking system and keep detailed records of all hours worked and payments made. Pay at least minimum wage for all hours worked and follow state-specific overtime rules when hours exceed 40 per week. Some states also require reporting time pay - meaning you might need to pay workers a minimum amount even if you cancel their shift.

Create clear written agreements that spell out the flexible nature of the work, pay rates, and how scheduling works. Many states now require giving workers their schedules in advance and paying extra for last-minute changes.

Have a system to track total hours across weeks or months. If someone consistently works full-time hours, they might legally qualify for benefits regardless of their contract type.

Hire and pay contractors compliantly in 150+ countries

Thera helps you handle contracts, payments, and compliance in 150+ countries - all from one dashboard. Whether you're working with zero-hour workers or regular contractors, we've got you covered.

What makes Thera different:

• Instant global payments in local currencies
• Built-in compliance for contractor agreements
• Bulk onboarding and payment processing
• Automatic invoice generation and tracking
• Best exchange rates with no hidden fees

Our customers, from YC startups to enterprises, save hours every week on contractor management. As Ian Myers, Founder of Oceans puts it: "Switching to Thera was one of the best decisions we made. We now manage hundreds of contractors, along with payments and compliance all in one platform."

Schedule a demo with Thera, and let us show you how we make your contractor management risk-free, and easy.

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