Zero-Hour Contract Holiday Pay: Your Compliance-Friendly Guide 2023 (CIPP-Expert Approved)

Need a straightforward guide to calculating zero-hour worker's holiday entitlement?

If you're reading this, then chances are you already know it can be a bit of a minefield...

A lot of the guidance you'll read online is out-of-date and no longer applies to HMRC’s current guidance on holiday pay for workers on casual contracts/zero hours.

Below, we'll break down the essential information you need to know around zero-hours contract holiday pay, in as simple terms as possible and dispel any misinformation you might've seen elsewhere.

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Quick overview: what are zero-hours contracts?

Zero-hours contracts are employment agreements that don't guarantee a specific number of working hours for the employee.

Under these contracts, your employee remains available for work, but is only scheduled to work when you need them - and they're paid solely for the hours they actually work.

This means your zero-hour employees might not receive benefits you'd typically get for traditional employment...

Things like paid sick leave or access to certain employment rights.

The UK government has introduced regulations to improve the conditions of workers on zero-hours contracts.

These regulations aim to ensure that employees on zero-hours contracts are not unfairly treated and have access to certain rights - and it's essential that you, as an employer, keep on top of them.

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What are zero-hour contract workers' rights?

Entitlement to bank holidays

Entitlement to holidays is usually something that will be dictated in your contracts - so there’s not necessarily a right or wrong approach here…

It’s up to you to decide whether or not your zero-hour contract workers need to work on bank holidays.

Some employers might give bank holidays off and pay workers for them on top of their annual leave entitlement.

Zero-hours workers are usually entitled to public holidays, although this does depend on a couple of factors...

Employment status: If a zero-hour worker is classified as an "employee" and has a regular working pattern, they are typically entitled to receive their usual pay for any bank holidays that fall on days they would usually work.

Irregular working patterns: For zero-hour workers who work irregular hours, their entitlement to bank holidays might vary.

Pay for bank holidays is calculated the same way as pay for regular holidays. If a worker is entitled to bank holiday pay, this’ll be calculated by averaging their pay over the past 52 weeks (which we'll get to below👇).

If the worker has earned pay during these weeks, they should be paid a proportionate amount for the bank holiday.

However, if they haven't worked and earned during those weeks, they might not be entitled to additional pay for bank holidays.

Zero-hours contract minimum holiday entitlement

Almost all workers here in the UK are entitled to 5.6 weeks paid annual leave a year.

This includes zero-hours contract workers and those working irregular hours as well as regular full-time employees.

If you have workers with no fixed work pattern, then their entitlement should ideally be kept in weeks.

Right to holiday accrual

Zero-hour contract workers will start accruing holiday allowance as soon as they start working for you, even if they're not working regular hours.

If a worker is on sick leave, they'll still continue to accrue holiday entitlement - and the same goes for any other type of statutory leave (maternity leave, paternity leave, parental leave, shared parental leave and adoption leave).

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How to calculate holiday entitlement for zero-hour workers

Zero-hours contract holiday entitlement is calculated in the same way as any other worker...

Everyone has a 52 week reference period (which can be extended back to 104 weeks if needed).

For casual workers and those on zero-hours contracts, the holiday pay they're owed will be their average pay over the previous 52 weeks worked.

You simply take the last whole week in which they worked and earned pay,.

When it comes to working out holiday pay reference periods, a week is defined as starting on a Sunday and ending on a Saturday.

'Paid weeks' are essentially weeks in which a worker is paid any amount for their work during that period.

The only time you would discount a week from the 52-week reference period is if no work was performed/no pay was received.

So, you add up the total pay over the 52 weeks (just sum up the pay for each week worked).

And then divide this by 52 to get your holiday pay calculation.

If a worker earned £15,000 over the past 52 weeks...

£15,000 ÷ 52 weeks = £288.46

This means £288.46 is how much you'd pay for a week’s holiday (an average of their weekly pay).

If a worker doesn't have 52 weeks earnings, then you can just use the number of weeks they have been employed for instead.

It's important that you always use weekly pay for this calculation even if a worker usually receives their payslip monthly

If a worker is not paid weekly, you still need to be able to work out what their pay is each week.

Why? Because a weekly pay figure is used to determine holiday pay via the reference period.

The concept of weekly pay is used in legislation because it is always the same length, while the lengths of months and indeed years are changeable.

Note: The law on holiday pay changed back in April 2020. Instead of calculating holiday pay using an average from the last 12 weeks in which someone worked (and earned pay), the reference period is now 52 weeks for all workers.

Still need an extra hand? You can use HMRC's holiday pay calculator

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Zero-hour contract holiday pay FAQ

Do zero hour contracts get holiday pay?

Yes... zero-hour contract workers have generally have the same holiday pay entitlement as any other type of worker on your payroll.

Nearly all workers in the UK have 5.6 weeks of holiday entitlement.

Can I still use 12.07% to calculate holiday pay?

No - the laws and regulations now dictate that everyone should get at least 5.6 weeks per year - whether they're full-time workers or on zero-hour contracts.

If you're still calculating annual leave entitlement for zero-hours or similar workers using the 12.07% method you should stop immediately and follow the HMRC-approved guidelines above.

Is rolled-up holiday pay still used?

“Rolled-up holiday pay” is the practice of paying an additional amount on top of the normal hourly rate of pay - with the additional amount intended to represent your holiday pay, instead of workers actually taking that time off.

This is now completely unlawful and should be stopped if currently being used.