Zero Hour Contracts

The holiday pay reference period for working out holiday pay for zero-hour contract workers was increased from 12 to 52 weeks with effect from 6 April 2020. Read more on holiday pay, entitlements & rights for a zero-hour contract worker.
  • Author: Siva
  • Last updated: April 26, 2022
  • 5 Minutes
zero hour contracts in UK explained by Papershift

With zero-hour contracts a common feature in the UK workplace, it can be difficult to know the rights and responsibilities of both staff and employers. This is especially true when looking at holiday entitlement and pay. 

That’s why we’ve created this quick guide to holiday pay and entitlement for zero-hour contracts. In this guide we will look at how leave is calculated for zero-hour staff as well as what the law says about such matters. Let’s get started.  

What is a Zero-Hour Contract?

Under the Employment Rights Act (ERA) 1996, a zero-hour contract is defined as 

“a contract of employment under which the undertaking to … perform work or services is an undertaking to do so conditionally on the employer making work … available to the worker, and where there is no certainty that any such work … will be made available to the worker.”

In effect, this means that an employer makes work available to its employees when they need them to work. There is no obligation for the employer to provide work and there is no minimum number of working hours they must give to the worker. Equally the employee is not legally obliged to accept work that is offered. 

Why Are Zero-Hour Contracts Offered to Staff?

In practice, zero-hour contract are used to in workplaces where a casual agreement between the business and staff is required. It is often used by employers who need an accessible pool of workers in response to fluctuating demand or temporary staff shortages. This could be to deal with seasonal work or special events. These types of contracts are also especially prevalent in the gig economy, such as Deliveroo cyclists and Uber drivers.

What are the Rights of Zero-Hour Workers?

Although the casual nature of a zero-hour contracts suggest that employees have limited employment rights, there are statutory rights and obligations that still govern how they are handled. The most significant of which is the statutory right to be paid the National Minimum Wage and the right to a minimum level of paid holidays.

As such, employees on zero-hour contracts will be entitled to be paid a minimum rate of pay per hour for the number of hours worked as set out by the Government. On top of this they will also begin to accrue paid holiday entitlement from the beginning of employment.

It’s important to note that the sporadic nature of zero-hour working arrangements can often mean there are gaps in a worker’s employment, breaking the continuity of service for the purpose of accruing holiday. This can lead to workers having less holiday entitlement than a worker on a standard contract of employment.

How Does Holiday Entitlement Work with Zero-Hour Contracts?

Under the Working Time Regulations 1998, workers are legally entitled to a minimum of 5.6 weeks’ paid holiday each year. This includes those workers on zero-hour contracts. In all cases, employees will begin to accrue leave as soon as they start their job.

For a full-time employee working fixed hours over five days a week, this equates to a total of 28 days paid holiday. It’s important to note that an employer can include bank holidays and public holidays as part of this statutory leave entitlement.

In the case of workers on zero-hour contracts, the entitlement to paid holiday technically still accrues in the same way but may be worked out slightly differently. Many employers who offer zero-hour contracts often allow employees to accrue holiday entitlement at a rate of 1/12 of their annual entitlement each month. Others may calculate holiday entitlement based on the number of hours worked by an employee. If the latter approach is taken, then holiday is accrued at a rate of 12.07% of the total hours worked in a year. 

Are Zero-Hour Contract Workers Entitled to Holiday Pay?

Zero-hour workers are entitled to holiday pay, but the amount will depend on how much work they have performed for the employer within the holiday reference period (see later).

How Long Is the Holiday Reference Period for Zero-Hour Holiday Pay?

The holiday pay reference period for working out holiday pay for zero-hour contract workers was increased from 12 to 52 weeks with effect from 6 April 2020. This is the period used to work out how much an employee’s holiday pay will be.

How is Holiday Pay Calculated for Zero-Hour Contracts?

By law, all workers are entitled to pay for each week of statutory leave they take. The amount they receive will depend on the number of hours they work and how they are paid for those hours. The law states that the pay received by a worker while they are on holiday should be the same as what they would have earned if they had been at work.

For a zero-hour worker, where their working pattern is not guaranteed or fixed, a week’s pay for the purposes of paid holiday entitlement will usually be based on the worker’s average pay from the required holiday pay period. The pay reference period must include the last 52 weeks for which the worker was actually paid. This excludes any weeks where they were not paid but does include weeks where wages may have been less than normal. 

As an Employer, Are There any Tech Solutions That Can Help with Zero-Hour Contracts Holidays?

The short answer is, yes. There are a variety of HR software solutions that allow employers to manage the holiday entitlement of staff on zero-hour contracts. These can often work out the holiday allowance and pay for workers automatically as well as allowing staff to book holidays and track their own allowance. Most HR software solutions come with a monthly subscription cost but the savings in terms of time and money can far outweigh this. 

In Conclusion

We hope that our guide to holiday pay and entitlement for zero-hour contracts has helped relieve any of the stress involved with the topic and has enlightened you on the best practices in this area of employment.

For more useful and informative guides, check out the rest of our website.

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Written by Siva

I write & describe the value & benefits delivered by Paperhift's rota planning, staff time tracking, and employee payroll management software. Especially useful for Shift Planners, Rota Managers, Team Admins, and HR Teams :-)