May 8, 2019

Zero-Hours Contracts: Holiday Pay and Entitlement

The Working Time Regulations, which govern workers’ and employees’ rights to rest breaks, compensatory rest and paid annual leave, can be extremely complicated. Our HR & Employment Law Advice Line receives several queries each week regarding these matters.

Common Queries include:

• If an individual is self-employed, are they not entitled to paid annual leave?
• What is the correct calculation for paid annual leave for a part time employee?
• Are bank holidays automatically included in a year’s leave entitlement?
• When should the holiday year start for a new starter?

But we have seen a particular spike in requests for information and advice relating to employees working zero-hours contracts.

How many people in the UK work a zero-hours contract?

Latest statistics indicate that there are close to one million employees employed on zero-hours contracts. This stark rise over the last few years is likely because of employers’ perception of the lack of or reduced amount of obligations toward such workers.

Are zero-hours workers entitled to paid annual leave?

Employees engaged on zero-hours contracts have the same legal protections as more traditional ‘full time’ employees. We are sometimes asked, “are zero-hours employees entitled to paid annual leave?”. The answer is simply ‘yes’.

They are entitled to paid leave during employment. Zero-hours workers are also entitled to paid leave upon termination of employment if there is any accrued leave that hasn’t been taken. Zero-hours workers continue to accrue in the same manner as full-time employees. The only exception to this is cases where there might be a break in employment. For example, if an employee on a zero-hours contract works January-April but then has no work for June and July and works again from August.

So, whilst the principle is simple, sometimes the calculation for what the entitlement is and what the compensation is for leave when taken, can be quite complex.

Why is it often more practical to calculate zero-hours contract worker’s annual leave by hours worked?

All employees (and workers) are entitled to 5.6 weeks paid annual leave per year. For a traditional Mon-Fri full timer, this equates to 28 days. It is capped at a maximum of 28 days per year. However, the employer can agree to give a higher entitlement contractually. For example, giving paid annual leave on bank holidays in addition to the 5.6 weeks per year.

Employees on zero-hours contracts accrue annual leave from the first day of their employment. Whereas the entitlement technically accrues in the same way as full time employees (monthly at 1/12 of the annual entitlement) it is often more practical with zero hours employees to calculate their entitlement based on hours worked or even minutes in some cases.

A zero-hours employee is entitled to a pro-rata amount of 5.6 weeks holiday. This figure equates 12.07% of hours worked over a year. This is arrived at using the calculation 5.6 (weeks of paid leave) divided by 46.4 (remaining weeks in the year). Therefore, holiday is accrued at a rate of 12.07% per hour. The 12.07% figure is calculated by taking 5.6 weeks’ holiday and dividing it by 46.4 weeks (which is 52 weeks less 5.6 weeks).

For example, if an employee on a zero-hours contract works 10 hours in a week, then he/she would have accrued 1.2 hours leave. (12.07% of 10).

In week 2 if the employee worked 30 hours, they would accrue 3.6 hours for that week (4.8 hours to date).

How do I calculate the payment when a zero-hours worker wishes to take paid annual leave?

So, at the point that the employee wishes to take paid annual leave, the way to calculate the payment due is to add up the number of hours worked in the preceding 12 weeks and apply the same calculation. It is important to note however that any weeks in which there was no work done should be ignored and replaced by the next week in which work was done. Even if this was longer than 12 weeks ago.

Let’s say there were 310 hours worked by the time leave was requested, the individual would have accrued 37.5 hours. They could therefore have a week off and be paid for 37.5 hours at their standard rate. When they returned to work, the calculations would resume.

Next Steps

We hope this helps you to understand this tricky and sometimes misunderstood issue. Moorepay customers who would like specific advice on zero-hours contracts should contact the Advice Line on 0345 073 0240.