Employment law, HR

Zero Hours Contracts Holiday Pay & Holiday Entitlement Explained

Bryan Brown | 25 April 2022 | 2 years ago

Zero Hours Contracts Holiday Pay & Holiday Entitlement Explained

Zero-hours contracts have risen in popularity in recent years due to increased demand for flexible work and an increase in the number of people working in the gig economy so anyone on this type of contract or employers of zero-hours workers needs to understand their rights and entitlements to pay, and holidays when using zero-hours contracts.

Anyone working on a zero-hours contract is entitled to a paid holiday of 5.6 weeks a year if working five days a week. The actual amount of paid leave due will be pro-rated and calculated based on the average number of hours worked in the previous 3 months. The figure this amounts to will depend on the hourly rate at which the contract work has been agreed.

People on zero-hours contracts need breaks and holidays just like employees, so whether you’re currently on a zero-hours contract, are looking into this type of work, or are employing workers on this basis, read on as we cover zero-hours contracts, holiday pay and holiday entitlement to ensure you know exactly what zero-hours contracts mean for workers and employers.

What Is A Zero Hours Contract

A zero-hours contract, also commonly referred to as a casual contract is usually used when employers need access to on-demand or on-call staff but don’t have regular work available to offer a full time or part-time contract that would offer a guaranteed number of hours a week.

A zero-hours contract, therefore, means that there is no guarantee of work being given and if hours are offered, the worker does not have to accept them. Zero hours contract workers are also able to work for multiple employers at the same time and cannot be penalised for doing so.

Individuals can be issued a zero-hours contract from an employer and while the specific terms can vary from business to business depending on their needs, the fundamental rights and entitlements to statutory payments, annual leave and minimum payments set out in UK employment Law apply regardless. Some employers will refer to the individual working on a zero-hours contract as an employee and some will use the word worker.

Examples of when zero-hours contracts are commonly used include industries where levels of work fluctuate unexpectedly such as

  • Interpreters
  • Gig services such as taxi driving or take away deliveries)
  • Waiting and bar staff
  • Delivery driving
  • Care work
  • Warehouse work
  • Bank staff (individuals that can plug gaps in regular services when needed)
Just like regular employment contracts, zero-hours contracts workers are entitled to statutory annual leave, the national minimum wage, and employers are responsible for the worker’s health and safety when working for them.

Employment Status of Zero Hours Contracts

Handshake in front of CV

‘Zero Hour Contract’ is not a legal term, but instead is a phrase used to refer to atypical styles of working, which is effectively any pattern of work that is outside the scope of a traditional full-time or part-time employee working under an employment contract for a single employer.

The contract that exists will set out that one party, the employer, is asking the other party to perform work for them but that there are no minimum numbers of hours available. The payment due per hour worked will also be set out and the agreement should cover the circumstances when work may be offered and turned down, and how and when payment will be made.

These points cover the foundations that will be evident in all zero-hours contracts but the specifics of the arrangement will vary from organisation to organisation, and this includes the employment status and whether individuals are engaged as employees or workers.

Employers need to be clear on the employment status of individuals working for them on zero-hours contracts as both offer different protections, rights and responsibilities under UK employment law.

Employee Or Worker?

Zero-hours contracts can be issued to individuals on a worker or employee basis and both the employer and the person working for them must understand their employment status.

To be an employee;

  • there is a mutuality of obligation, meaning that there is a written or oral contract between the employer and individual.
  • the employer controls the way in which work is done including what, how, when and where work is done.
  • Obligation to provide a personal service which means the individual agrees to perform the work or services themselves and not pass it on to anybody else.
To be a worker;

  • there is a mutuality of obligation, meaning that there is a written or oral contract between the employer and individual.
  • There is an obligation to provide a personal service which means the individual agrees to perform the work or services themselves and not pass it on to anybody else.
  • The individual isn’t carrying out a business and the other party is not a customer; and
  • They do not meet the test for being an employee
Workers tend to possess traits of individuals that would otherwise be self-employed but have the legal rights of employees. Employment status determines the rights of an individual including how they can be treated by an employer and the benefits that they are entitled to.

Employees have the right not to be unfairly dismissed, the right to statutory minimum notice and statutory redundancy pay, family-related rights and certain other rights to time off, and protection against discrimination and whistleblowing.

Workers do not have the same rights as employers but do have the same statutory protection relating to pay, rights under the working time and whistleblowing legislation, and protection from discrimination.

Do Zero Hours Contracts Include Paid Holidays?

Deckchairs on beach

Now that we’ve covered what a zero-hours contract is and the employment status that exists within them we can cover the specifics of zero-hours contracts surrounding statutory entitlement to paid holidays in more detail.

All workers are entitled to a week’s pay for each week of leave that they take, including zero-hour contract workers. This means that zero-hours contract workers are legally entitled to take up to 5.6 weeks of paid holiday a year as long as they are working a full five day week, and it’s up to the employer whether this includes bank holidays or not. The amount paid will be calculated based on hours worked, and the amount they’re paid for these hours.

How Does That Equate To The Hours Worked?

Just like full-time employees, zero-hours contract workers start to accrue paid leave as soon as they start working for their employer. As the number of hours they work can vary week to week, it is easier to calculate how much paid leave they are due in hours, rather than days or weeks using the following method:

  • There are 52 weeks in a year
  • Minus 5.6 (for the annual statutory holiday entitlement for all workers)
  • This gives 46.4 weeks that the worker must work to claim the full 5.6 weeks leave allowance which is also 12.07%.
Therefore, as zero-hours contract workers tend to have fluctuating working patterns, they may not work the full 46.4 weeks required for 5.6 weeks of holiday a year. This means that they are entitled to a pro-rata amount of the 5.6 week’s holiday entitlement based on the number of hours worked.

To put this simply, employers need to calculate 12.07% of the number of hours worked to calculate how much paid holiday is due to somebody working on a zero-hours contract.

For example Worker 1 has worked 10 hours in a given week.

(12.07 / 100 ) x 10 = 1.2 hours or 72 minutes of leave accrued for that week.

Employers will need to work out every zero-hours contract workers’ holiday entitlement due individually and this can be done using the method above, which is made even easier by using the government’s holiday entitlement calculator.

How Is Holiday Pay Calculated?

calculator on desk

Workers on zero-hours contracts are likely to have significant fluctuations in the number of hours worked in any given week as they are not contracted to work a set number of hours in a week. This means that calculating the total of a week’s wage that they would be entitled to for a week’s holiday pay is calculated differently for regularly employed workers.

Holiday pay for zero-hours contract workers is worked out by using the average pay issued in the previous 12 weeks, but this only includes the weeks in which payment was made. This means that if a week went by where no work was completed in the previous 12 weeks, it won’t bring down the average or pay due and you can count back to another week to use a 12-week average.

For example, A worker on a zero-hours contract wants to take one week of paid leave. To calculate the amount of holiday pay that a worker is due, their employer will need to add up the total amount paid to them in the previous 12 weeks, then divide that figure by the number of weeks that they were actually paid.

What If They Haven’t Worked For 12 Weeks?

If the worker hasn’t accumulated any previous payment in the 12 weeks before the leave is taken, you can count back a maximum of 104 weeks to find any payments and use this in the calculation of holiday pay owed.

If the worker still has less than 12 weeks of pay, if they are new to the company for example then the average pay rate for the full weeks they have worked should be used instead.

For more information on holiday pay for zero-hours workers, visit gov.UK

What About When The Contract Ends?

Upon termination of a zero-hours contract, the worker is entitled to be paid for any holidays from their prorated allowance that they haven’t yet used. Employers will also need to pay them for any other statutory entitlement such as maternity pay or sick pay if these are due too.

As zero-hours contracts can result in an ongoing contract or several short contracts, UK employment law states that if a zero-hours contract worker hasn’t worked for four weeks, this is considered the end of their employment and you should pay them for untaken leave up to that point, even if you intend to offer further work at a later date.

Related Questions

Pros and Cons Of Zero Hours Contracts 

Zero-hours contracts don’t suit everyone but they do present compelling flexibility that suits a lot of people. Here are some of the main pros and cons to consider when taking a zero-hours contract.

Pros:

  • Zero-hours contracts can be a great way to boost your income on a flexible basis that can fit into the free time you have available.
  • As individuals can work for multiple employers on several zero-hours contracts, it’s a great way to enjoy variety in the work that you do
  • Flexibility, when you work, is one of the biggest plus points for zero-hours contracts. If you don’t mind working irregular hours or working at times outside a regular 9-5 working pattern, the flexibility available is often positive.
  • You can take leave whenever you need it, without needing approval from your employer.
Cons:

  • Unpredictable hours that could be offered last minute, make planning your life around work and budgeting for regular outgoings a little more difficult so may not suit those with young families or dependent responsibilities.
  • The hourly rate of pay for zero-hours contracts, whilst meeting minimum wage thresholds, tends to be less than you’d find in equivalent full time or part-time employed roles
  • Workers can feel obliged to take work offered to them even if it’s not convenient as they are worried that turning down work will result in less work being offered in the future. This can lead to feelings of pressure, despite employers not being able to penalise workers for not accepting the work offered.

Summary

Zero-hours contracts holiday pay and holiday entitlement explained in the article above can be summarised as follows:

  • Individuals working on zero-hours contracts can be engaged to work as an employee or a worker.
  • Regardless of employment status, zero-hours contract workers are entitled to receive statutory paid holiday which accumulates as soon as they start working and they must also be paid the national minimum wage or more.
  • The national minimum wage is £9.50 for workers over 23, £9.18 if aged 21-23, £6.83 for 18-21-year-olds and £4.81 for under 18’s.
  • Zero hours contract workers are entitled to 5.6 weeks paid leave a year or a pro-rated amount if not working at least 5 days a week
  • To work out how many hours have been worked to calculate the accused paid holiday due, employers need to calculate 12.07% of the number of hours worked in a year.
  • Holiday pay is calculated by using the average number of hours worked in the previous 12-week period, or as many weeks worked if less than 12.
  • Paid leave accrued but not taken must be paid to the worker when their contract ends.
 

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