Are Zero-Hours Workers Entitled to Holiday Pay?

When running a business, you may have some workers who are on zero hour contracts. They'll require some annual leave or holiday away from the company, which needs to be paid correctly.

However, because workers on a zero hour contract won't work the same hours each week - it can be difficult to calculate holiday entitlement.

As an employer, it's crucial you understand how to calculate it correctly to ensure your workers receive what they're legally entitled to.

In this guide we'll discuss what a zero hour contract is, if people on them are entitled to holiday pay, and how to calculate it correctly.

What are zero hour contracts?

A zero hour contract is when an employer is not obliged to provide someone with a minimum number of hours. In some cases, there's no guarantee of any hours at all.

Many people who work a zero hour contract are casual workers, meaning they only work if and when the business requires.

Industries where zero hour contract workers are common

Within UK employment, there are many industries where a zero hour contract is used regularly. These include:

• Catering or hospitality.
• Construction.
• Retail.
• Healthcare.

Zero hour contracts are especially popular with students. This is because it gives them a chance to work casually during their studies in further education.

Are people on a zero hour contract entitled to paid holiday?

Yes, people on a zero hour contract must receive the statutory minimum holiday entitlement of 5.6 weeks under the Employment Rights Act 1996.

It's your discretion whether you want to include bank holidays within a zero hour workers' holiday entitlement. Some employers make it a part of their holiday entitlement package, or others include it as an add-on.

How much holiday pay should zero hour contract workers receive?

Zero hour workers should receive their normal rate of weekly pay when on annual leave or holiday. But where weekly pay varies employers should calculate holiday pay based on average weekly earnings over the previous 52 weeks.

This is exactly the same for full-time, part-time, and fixed term workers. It’s a requirement under UK law. So not providing the correct amount means you're not complying with your legal obligations as an employer.

Can you be taken to an employment tribunal over zero hour holiday pay?

Yes, not paying any of your workers the correct amount of holiday is against employment law and could lead to claims being raised against you to an employment tribunal.

You must provide all your workers with their statutory rights, such as paying the National Minimum Wage.

How to calculate zero hour contract holiday pay

It's important you know how to calculate holiday pay for any workers you have on a zero hour contract. Calculating holiday for someone on a zero hour contract can be difficult.

But because a zero hour contract employees' weekly working hours may change, their holiday pay is calculated using the worker's average pay rate over the previous 52 weeks.

How to calculate an average week's pay for zero hour workers

There's a simple calculation to follow when working out the average weekly pay for zero hour workers. To do so, you must:

• Add together how much they were paid for 52 weeks.
• Divide the number by the earnings from the previous 52 weeks.

However, you shouldn't include any weeks where they were on sick leave, maternity or paternity leave, or not provided any work.

If an employee's average weekly pay is £100 and they want to take 2 weeks' holiday, £100 x 2 = £200 holiday pay. Remember that the calculation should be re-done at the beginning of every holiday period.

How to calculate someone's average hourly pay

To calculate the hourly pay for a zero hour worker, there's a simple formula you should follow. Divide the month's pay by the numbers of hours the worker performed in a month. For example:

If someone worked 64 hours in a month, and got paid £300 a week, it would equate to:

• £300 x 4 weeks worked = £1200 a month.
• £1200 ÷ 64 = £18.75 per hour.

Can you use the percentage method for calculating holiday entitlement for zero hour contracts?

No, you cannot use the old percentage method as a way to calculate zero hour contract holiday pay. Formally, holiday entitlement for zero hour contract workers were given on a pro-rata basis. This was changed in late 2022 by the UK Supreme Court following the Brazel v Harpur Trust case.

If you continue to use this method to calculate holiday pay for your workers, you could face claims to an employment tribunal. But this is due to change following the Government's announcement in November 2023.

Can you use rolled-up holiday pay for zero hour contract workers?

No, you cannot use rolled-up holiday pay for zero hour contract workers. Rolled-up holiday was the practice of paying a higher hourly-rate to staff - with this additional amount representing holiday pay.

This is instead of them receiving payment during the time of their holiday. It was used to deal with holiday entitlement for casual or short-term workers. However, the courts ruled this is unlawful, so you must avoid using it at all costs.

Future changes to holiday entitlement calculations

There are some changes being made to the way holiday entitlements are calculated that you need to be aware of. Let’s explain them in more detail:

• Rolled up holiday pay will be allowed from 1 April 2024 as long as the worker counts as an irregular hour or part-year worker. Pay is calculated at 12.07% of all pay for work done.
• For holiday years from 1 April 2024, irregular hours and part-year workers will accrue annual leave entitlement on the last day of each pay period. This will be at the rate of 12.07% of the number of hours that they have worked during that pay period. But, it’s subject to a maximum of 28 days per year.
• The government plans to introduce an annual leave accrual method for when irregular hours workers and part year workers take sick leave or any maternity/family related leave.

The new laws are expected to come into effect from 1 January 2024 and applies to leave years starting on or after 1 April 2024.

Get expert advice on zero hour holiday pay from Peninsula

As a business owner, you may have employees on a range of employment contracts - such as a zero hour. And when they want to take annual leave or holiday, it's vital you pay them properly.

But because people on a zero hour contract won't work the same hours each week - it can be difficult to calculate holiday entitlement. So it's crucial you understand how to calculate it correctly to ensure your workers receive what they're legally entitled to.

Peninsula offers expert advice on a zero hour contract and holiday pay surrounding it. Our teams provide 24/7 HR advice which is available 365 days a year. We take care of everything when you work with our HR experts. We've even got a free employment contract template for you download now.

Want to find out more? Contact us on 0800 028 2420 and book a free consultation with an HR consultant today.