February 17, 2022 Last updated February 17th, 2022 1,003 Reads share

Zero Hour Contracts and Holiday Pay

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You may think that hiring staff on zero hour contracts means you’re under no obligation to offer paid holidays, sick pay and annual leave, but you’d be wrong. Under UK employment law, a person working a zero hours contract has as much entitlement to paid leave as a permanent member of staff contracted for a set amount of hours each week.

In this guide to zero hour contracts, leading Chartered Accountants, HWB, explain everything you need to know about accruing paid holiday as a zero hours worker, and how to accurately calculate holiday pay for any zero hours employees your business contracts.

What do we mean by zero hour contracts?

A zero hours worker, sometimes referred to as a casual worker, is someone who has a contract of employment with a business, but isn’t guaranteed any fixed hours of work each week.

Contracting staff on a zero hours basis has become an increasingly popular way for employers to take on additional resource during busy periods such as Christmas, with greater flexibility than a standard employment contract allows.

Zero hour contracts and holiday entitlement

One common misconception of employing staff on a zero hour basis is that the worker isn’t entitled to paid holiday. This is in fact untrue. Anyone who signs a zero hours contract is as equally entitled to paid leave as permanent employees your business hires.

This means that even if a zero hour contracts worker terminates his or her employment without using up any days of paid leave, you must still pay them for the holiday time they’ve accrued.

How to calculate holiday for zero hour contractors

As with part time members of staff, holiday entitlement for zero hour contracts workers is calculated on a pro-rata basis, based on a legal entitlement of 5.6 weeks of paid holiday per year.
As zero hour workers aren’t contracted for set weekly hours like permanent employees, their holiday pay is calculated by taking an average of a worker’s pay over a 52 week period (the holiday pay reference period). This reference period was previously calculated using the last 12 working weeks, however, the law changed on 6th April 2020).

However, when calculating a zero hour worker’s holiday pay in order to prevent employers having to look back more than 2 years to reach 52 weeks, you should only include data counting back a maximum of 104 weeks.

If a worker has worked less than 52 weeks, you will need to make your calculation based on the total number of working weeks they have banked. If they’ve worked more than 52 weeks in a 104-week period you should use the data from the most recent 52 weeks to calculate their holiday pay.

Also, if a zero hour worker wants to take paid leave before they’ve accrued a full week’s work, you will be required to assess what you think is fair holiday pay, based on the worker’s rate of pay, any payment they have already received and what other workers in a comparable role are being paid.

For more information you can read the updated guidance on calculating irregular worker’s holiday pay on the UK Government website.

Breaks in zero hours contract employment

With zero hour contracts, it’s natural to have some weeks when you may not work and others when you take paid leave from your job.

If a zero hours worker isn’t given any hours for a consecutive period of four weeks, however, under UK law the employer must treat this as a termination of their contract and pay them any outstanding holiday entitlement they are owed.

This applies irrespective of whether you plan on giving the worker hours again in the future.

Zero hour contracts and statuary sick pay

Unless you’re self employed, if you work and have a contract of employment you are entitled to statuary sick pay, providing you meet the following criteria:

  • You’re currently in work
  • You are sick for four or more consecutive days
  • You earn at least £120 per week on average

While this is more clearcut for permanent full and part time members of staff, according to Citizens Advice, zero hour contracts workers who meet this eligibility should also be entitled to sick pay from their employer.

Zero hour contracts

Finally, although a zero hours worker may have a casual, no obligation, working arrangement with your business you must still issue them with a contract of employment by law that stipulates the following as a minimum requirement:

  • Employment status
  • How any entitlements will be paid and accrued
  • The method for accepting/rejecting work
  • The contract termination terms

Don’t forget, an employment contract outlines in no uncertain terms what you expect from the employee and what they can expect from you, and it protects both your interests.

To ensure that you remain compliant in payroll requirements, we would recommend that you outsource to an experienced payroll services provider who keeps up-to-date with all legalities.

James Alesbury

James Alesbury

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