July 28, 2021
Casual or zero-hours contracts: calculating holiday pay and entitlement
Working out holiday entitlement for casual (zero-hours) employees can be extremely complicated. Our experts share everything you need to factor in.
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?
What is a zero-hours worker?
A zero-hours worker used to be the term for an employee working differing hours per week. However, in 2020, the Government issued new a definition for zero-hours workers. Their new definition is that of a casual worker. This means that the person only works on an ad hoc basis, is not permanently on the payroll and there is no mutuality of obligation. This means that the worker can be offered the work and either accept it or refuse it.
The former zero-hours contract is now referred to as a variable-hours contract.
Are casual workers entitled to paid annual leave?
Workers engaged on casual contracts have the same legal protections as more traditional ‘full-time’ or ‘part-time’ employees. We are sometimes asked, “Are casual employees entitled to paid annual leave?”. The answer is simply “yes”.
Casual workers accrue holiday entitlement in the same manner as full-time employees. The exception is that there will be breaks in employment. For example, a casual worker may work for two weeks in January, but then has no further work until April.
So, whilst the principle is simple, sometimes the calculation for what the entitlement is can be quite complex.
Why is it often more practical to calculate a casual contract worker’s annual leave by hours worked?
All employees (and workers) are entitled to a statutory minimum of 5.6 weeks paid annual leave per year, inclusive of bank holidays. For a traditional Mon-Fri full timer, this equates to 28 days. However, the employer can agree to give a higher entitlement contractually. For example, they might give five weeks per year in addition to paid bank holidays, making a total of 6.6 weeks (or 33 days) per year.
Employees on casual contracts accrue annual leave from the first day of their employment, just like a normal full-time employee. Whereas the entitlement technically accrues in the same way, it is often more practical with casual employees to calculate their entitlement based on hours worked.
A casual employee is entitled to a pro-rata amount of 5.6 weeks holiday, or the total amount of holiday given by the employer. Using the statutory minimum of 5.6 weeks, this 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.
For example: if a worker on a casual contract works 10 hours in a week, then he/she would have accrued 1.2 hours holiday. (12.07% of 10).
Or, if the employee worked 30 hours, they would accrue 3.6 hours holiday for that week. (12.07% of 30).
If you offer more than the statutory minimum holiday, the following accrual percentages will apply (please note that the number of days holiday includes the bank holidays, whether you work on them or not):
29 days = 12.55% per hour
30 days = 13.04% per hour
31 days = 13.54% per hour
32 days = 14.04% per hour
33 days = 14.54% per hour
How do I calculate the holiday payment for a casual worker?
Due to the ad hoc nature of casual work, it is very unlikely that a casual worker will take any holiday during their casual assignment as they are usually quite short-term. This means that normally their holiday pay will be paid at the end of their assignment.
Using the above calculation for the amount of holiday accrued per hour corresponding to your total holiday entitlement, the casual worker will be entitled to that percentage of their hourly rate for each hour worked. This must be shown as a separate item – Holiday Pay – on the casual worker’s payslip.
Next Steps
You can read up on how to calculate holiday entitlement for part-time workers, furloughed workers, and how to calculate holiday pay for employees on a range of contracts.
We hope this helps you to understand this tricky and sometimes misunderstood issue. Moorepay customers who would like specific advice on casual contracts should contact the Advice Line on 0345 073 0240.
About the author
Elaine Pritchard
About the author
Elaine Pritchard
Elaine has a wealth of knowledge in producing contracts, training materials and other documentation as well as training other consultants. She piloted a scheme whereby she went on-site to act as a client’s HR Manager two days per week, whilst the post-holder was on maternity leave. Elaine also previously ran her own retail business for seven years, employing four people. Elaine is a field based consultant for Moorepay and provides on-site HR and Employment Law advice, consultancy and training services to our clients.
