Zero hour contracts remain a common feature of the UK economy, offering flexibility to suit both employers and workers.
While this working arrangement can offer a number of benefits for employers, it can also present challenges when dealing with zero hour contract workers’ holiday entitlement. The law in this area changed in April 2024, and employers must ensure they are complying with the new rules under the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023.
A further complication is that the UK Government has announced plans to ban zero hour contracts under the provisions of the Employment Rights Bill. While details and timescales for these reforms have yet to be published, employers must in the meantime ensure they comply with the law as it stands.
In this guide, we set out the current rules on zero hour contract workers’ holiday entitlement and pay, with guidance on annual leave accrual and how to calculate entitlements for your zero hour contract workers.
Section A: Zero Hour Contract Workers’ Rights
Under the Employment Rights Act (ERA) 1996, a zero hour contract is defined as a contract of employment under which the undertaking to do or perform work or services is an undertaking to do so conditionally on the employer making work or services available to the worker, and where there is no certainty that any such work or services will be made available to the worker.
In effect, this means there is no obligation on the employer to provide a minimum number of working hours, or even to offer work, although equally, the individual is not legally obliged to accept any work that is offered. The employer simply offers work as and when it arises, which the individual can either accept or decline.
In practice, a zero hour contract is used to describe various different types of casual agreements used by employers in need of an accessible pool of workers in response to fluctuating demand or temporary staff shortages. This could be to deal with the demands of seasonal work or special events, such as hospitality work. These types of contract are also especially prevalent with bank work for the NHS and gig economy work, such as Deliveroo cyclists and Uber drivers.
Notwithstanding the casual nature of a zero hour working arrangement, there are statutory rights and obligations that still govern that working relationship. Of most significance here is the statutory right to be paid at least the national minimum wage and the right to be a statutory minimum amount of paid holiday per year.
As such, having accepted the offer of work and having undertaken that work, the individual will be entitled to be paid a minimum rate of pay per hour for the number of hours worked. The worker will also begin to accrue paid holiday entitlement as per the statutory minimum requirement.
In the first year of any employment contract, an employer can insist on the worker waiting until they have worked enough days to build up their holiday entitlement before they can take it. This is known as an accrual system. By way of example, if the worker has only worked continuously for one month, they may only be allowed to take one twelfth of their annual holiday allowance.
In the context of zero hour contracts, the flexible (or irregular) nature of these working arrangements can very often mean that there are gaps in the worker’s employment, breaking the continuity of service for the purposes of accruing greater statutory rights. That said, where there is a break in the working arrangement, the worker will still be entitled to be paid for any accrued holiday that has not been taken, although paid holiday entitlement may not be replaced by a payment in lieu except where the worker’s employment is terminated.
Typically, if a worker is not provided with work for a full calendar week, or seven consecutive days from Sunday to the following Saturday, under the current rules this will usually count as a break in a worker’s continuity of employment.
If, on the other hand, the worker’s employment under a zero hour contract has been continuous, with no seven day break, after a year the worker may not have to build up holiday entitlement before they can take it. In some cases, the worker may also have enhanced contractual rights that provide for a higher rate of pay, or greater paid holiday entitlement, than the statutory minimum in any event.
Section B: Zero Hour Contract Holiday Entitlement
Under the Working Time Regulations 1998, workers are legally entitled to a minimum of 5.6 weeks’ paid holiday per annum, including workers on zero hour contracts or those working variable hours. Employers can offer a more generous ‘enhanced’ holiday entitlement as a contractual terms, but any such provision cannot be any less than the statutory entitlement.
For a full time employee working fixed hours five days a week, statutory holiday entitlement equates to a total of 28 days, although an employer can include bank holidays and public holidays as part of an individual’s statutory leave entitlement.
The law on holiday entitlement for zero hour contract workers has been subject to changes in recent years, through case law and most recently, through new legislation which took effect on holiday years starting on or after 1 April 2024. Under the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, holiday accrues at 12.07% of hours worked each pay period, capped at 28 days. Holiday pay should be based on average weekly earnings, ignoring unpaid weeks.
As such, zero hour contract workers receive holiday entitlement equivalent to 5.6 weeks per year, with their entitlement pro-rated based on the hours they work, accrued at 12.07% of the hours worked.
Annual leave will begin to accrue as soon as a worker starts their job. The employer should notify workers of the dates of their statutory leave year as soon as they start working, for example it might run from 1 January to 31 December, during which time the worker must take their leave entitlement. In the event that a leave year has not been set, this will start on the first day of a new job. If the worker started their job part way through a pre-set leave year, they will only be entitled to the part of their total annual leave entitlement for that current leave year that has been accrued. In the case of workers on zero hour contracts, the entitlement to paid holiday in the first year technically accrues in the same way as full time employees, namely, monthly in advance at a rate of 1/12 of their annual entitlement.
The worker has no automatic right to carry over any leave into the following year, although the contract may make allowance for this.
Section C: Calculating Zero Hour Contract Holiday Entitlement & Pay
To calculate holiday entitlement for zero hour contract workers, the key figure to remember is 12.07%. This percentage represents the proportion of the total working hours that count as holiday entitlement. As such, accrual is directly linked to actual hours worked, following the 12.07% calculation method. The rationale behind this figure is based on the statutory holiday entitlement of 5.6 weeks of paid leave, which is equivalent to 12.07% of a full working year (52 weeks minus the 5.6 weeks of holiday gives 46.4 working weeks).
For instance, if a zero hour contract worker has worked 100 hours in a given period, their holiday entitlement is calculated by applying the 12.07% rate to the total hours worked. This means the worker is entitled to 12.07 hours of paid holiday for every 100 hours worked. This means zero hour contract workers do not accrue holiday pay during periods when they do not work.
By law, all workers are entitled to one week’s pay for each week of statutory leave that they take, where the amount of pay a worker receives will depend on the amount of hours they work and how they are paid for those hours. The principle is that pay received by a worker while they are on holiday should reflect what they would have earned if they had been at work.
For a zero hour worker, you need to use the worker’s average hourly rate. As their working pattern is not guaranteed or fixed, holiday entitlement is typically calculated over the last 52 weeks of work in which the worker received pay. If the worker has not worked for 52 weeks, the average hourly rate is calculated over the weeks they have actually worked.
For example, if the worker’s average hourly rate is £10 and they have accrued 12.07 hours of holiday entitlement, their holiday pay would be £10 multiplied by 12.07, resulting in £120.70. This amount represents the pay the worker should receive for their accrued holiday hours.
Employers must ensure that holiday pay is provided in accordance with these calculations and is paid at the time the holiday is taken. It is essential to keep accurate records of hours worked and the corresponding holiday accrual to ensure compliance with the new regulations.
Example 1
| Detail | Calculation | Result |
|---|---|---|
| Total Hours Worked | 200 hours | 200 hours |
| Holiday Entitlement | 200 hours × 12.07% | 24.14 hours |
| Average Hourly Rate | £12 | £12 |
| Holiday Pay | 24.14 hours × £12 | £289.68 |
Example 2
| Detail | Calculation | Result |
|---|---|---|
| Total Hours Worked | 150 hours | 150 hours |
| Holiday Entitlement | 150 hours × 12.07% | 18.11 hours |
| Average Hourly Rate | £10 | £10 |
| Holiday Pay | 18.11 hours × £10 | £181.10 |
Section D: Need assistance?
Our employment law advisers are experienced in all aspects of employment law rights and entitlements, including both statutory and contractual provisions. We understand the challenges of managing zero-hour workers and provide guidance on how to develop and implement procedures that support compliant and positive working relationships, including how to calculate zero hour contract holiday pay . Contact us for advice on zero hour holiday entitlement and pay, or to discuss the potential implications of any future reform of the law on using zero hour contracts.
Section E: Zero hour contract holiday pay: FAQs
What is a zero hour contract?
A zero hour contract is a type of employment agreement where the employer is not obliged to provide a minimum number of working hours. Employees on zero hour contracts are typically called to work as and when needed, often on short notice.
Are zero hour contract workers entitled to holiday pay?
Yes, zero hour workers are entitled to 5.6 weeks of holiday pay each year as a statutory minimum, which is pro-rated based on the hours they work. Zero hour contract workers’ holiday pay accrues at 12.07% of the hours worked.
How to calculate zero hours holiday pay?
Holiday pay is calculated as 12.07% of the total hours worked. This percentage represents the statutory holiday entitlement of 5.6 weeks of paid leave out of a total of 46.4 working weeks in a year.
Can holiday entitlement be rolled over to the next year for zero hour contract workers?
Holiday entitlement should generally be used within the leave year it is accrued. However, some employers may allow a portion of unused holiday to be carried over to the next year, especially under specific circumstances, such as long-term illness or exceptional business needs.
Do zero hour contract workers accrue holiday pay during periods when they do not work?
Zero hour contract workers accrue holiday pay based on the hours they work. During periods when they do not work, they do not accrue holiday pay. Accrual is directly linked to actual hours worked, following the 12.07% calculation method.
What happens to accrued holiday pay if a zero hour contract worker leaves their job?
If a zero hour contract worker leaves their job, they are entitled to payment for any accrued but unused holiday leave. This payment should be calculated as 12.07% of the hours they have worked and included in their final pay packet.
Can employers refuse holiday requests from zero hour contract workers?
Employers can refuse holiday requests if there are valid business reasons, such as staffing needs or peak business periods. However, employers must provide reasonable notice and ensure that their refusal is not discriminatory or unjust.
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals
