Zero hours contract holiday pay

Workers on zero hour contracts don't work fixed or regular hours. In fact, some weeks they won't work any hours at all.

Yet, all zero hour workers are legally entitled to holiday pay. So, if you assumed that you didn’t have to give your zero hour workers paid holiday entitlement—under UK law you do.

Zero hours staff have the same legal rights as full-time employees with fixed hours. This means that workers on zero hours contracts are entitled to 5.6 weeks paid holiday a year.

However, if your leave year starts on or after April 1st, 2024, you will need to use the new rules for holiday accrual. We’ll cover these rules, further down.

When it comes to calculating holiday pay for your zero-hour contract workers, things aren't as straight forward.

But don’t worry, we're going to break it down for you.

How to calculate zero hour contract holiday pay

Calculating holiday pay for zero hours workers requires a structured approach to account for their irregular working hours.

So, we've broken down how to calculate holiday pay for your zero hours workers:

1) Determine the reference period

Your first step is to identify the reference period. In the UK, this reference period is determined by employment law and is set at 52 weeks, but it can be shorter if the worker has been employed for less than a year.

When determining the reference period, it's important to note you should only use the weeks when your worker received a week's pay. So, you may need to go back further to get the 52 weeks data.

However, you can look no further than 104 weeks.

2) Find the total hours worked

Next, you will need to collate the total number of hours worked by your zero hours worker during the reference period. This information can be found via timesheet reporting.

Just remember to take into account all hours worked including regular hours, bank holidays, and overtime.

Example:  

Your worker has worked a total of 1,300 hours over the past 52 weeks

3) Calculate the average hourly pay rate

As zero hours workers do not work the same hours each week, you will need to calculate your worker’s average pay rate.

To calculate the average hourly rate, you need to take the total earnings (including variable pay elements like overtime, bonuses, or commissions that are regularly paid) and divide this number by the total hours worked.

Example:

Your worker earned a total of £16,000 for the 1,300 hours worked over the past 52 weeks

So, the average hourly rate would be:

£16,000 / 1,300 hours = £12.31 per hour (average)

4) Calculate the holiday pay

Finally, now all that’s left is to calculate the holiday pay. All you need to do is multiply the average hourly rate by the number of holiday hours plan to take.

Example:

Your worker takes 10 days (equivalent to 50 hours) of holiday

So, the holiday pay would be:

£12.31 (average hourly rate) * 50 hours = £615.50

Employment law updates for zero hours contract holiday pay

UK law is changing annual leave entitlements for irregular hours workers (including zero hours workers) and part year workers.

For leave years that start on or after April 1st, 2024, your workers on zero hours contracts will accrue annual leave based on 12.07% of hours worked in a pay reference period. Meaning that their overall entitlement is reduced on a pro-rata basis and capped at 28 days per leave year.

Under the new rules, there are two options you can use when it comes to holiday pay.

Option one

It can be paid when the worker takes the holiday, they have accrued using the same calculation method as above (calculate the average paid over the previous 52 weeks).

Option two

Employers can choose rolled-up holiday pay which is when an extra 12.07% of total pay for work done in the pay period is added to the pay packet.

Responsibilities as an employer for zero hour contracts

If you're an employer who hires workers on zero hours contracts, it's important that you understand your responsibilities regarding their holiday pay.

As your workers on zero hour contracts do get holiday pay, it’s your responsibility to make sure you pay them what you owe.

If you don’t give eligible staff holiday pay or falsely claim they’re self-employed so you don’t have to pay them, your staff could take you to an employment tribunal and you could end up paying out thousands if the tribunal rules in your employee’s favour

So, it's best practice to always review how you give workers on zero hours contracts holiday pay to make sure you’re not short-changing them—for both their benefit and yours.

You also have a duty to inform zero hours workers about their holiday entitlement and how holiday pay is calculated. This information should be clearly communicated in their employment contract or provided separately in writing.

How BrightHR  helps with zero hour contract holiday pay

Holiday pay calculations for zero hours contracts can be exceptionally time-consuming and daunting, due to the nature of the irregular hours worked.

However, with the help of HR software, like BrightHR, equipped with a staff holiday planner that automatically makes holiday entitlement calculations, you can simplify the process and save valuable time.

That's not all, with BrightHR you can:

Keep up with the ever-changing employment laws

The rules surrounding paid holiday entitlement in the UK are forever evolving.

For example, in the Harpur Trust v Brazel case, the Supreme Court ruled that the 12.07% method should no longer be used to calculate holiday entitlement for a casual worker whose working pattern was irregular—which included zero hour contract employees.

However, this rule has now been overturned and you can use this method again for leave years that started on or after April 1st, 2024, for your zero hour contract workers.

These frequent changes mean as an employer you have to be vigilant to make sure you're following the law. And with 24/7 employment law advice from BrightHR you can rest assured that you're getting it right and avoid any hefty solicitor fees.

Make sure your zero hour contracts are in line with the law

It's not just enough to comply with the regulations, you must also follow the correct procedures, which can often extend your HR administration time by several hours. Fortunately, with BrightHR, you also get access to BrightBase.

Our HR document library is packed with hundreds of customisable policies, contracts and more written by qualified experts including an up-to-date 'zero hour employment contract', ready for you to use.

Not a BrightHR customer, why not read our guide to choosing HR software and try our return on investment calculator? Discover how you could save with the right HR software and how it can become the backbone of your business.