With zero hour contracts a common feature of the UK economy, the following guide looks at the law relating to zero hour contract holiday pay entitlement.
Zero hour contract 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 an employer makes work or services available to a worker if the employer requests or requires the worker to do the work or perform the services.
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. Perhaps of most significance here is the statutory right to be paid the national minimum wage and the right to be granted a minimum level of paid holidays.
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 sporadic 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.
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. This means that unless the worker is part-time or fixed-term, there is no difference in holiday accrual or entitlement compared to those working fixed hours. Following the decision in Harpur Trust v Brazel in 2022, it is no longer allowable to calculate holiday entitlement for zero hour contract workers using the 12.07% pro-rata method.
For a full time employee working fixed hours five days a week, this 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 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.
Annual leave will begin to accrue as soon as a worker starts their 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 some allowance for this.
Calculating zero hour contract holiday pay
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, where their working pattern is not guaranteed or fixed, a week’s pay for the purposes of paid holiday entitlement will usually be based on the worker’s average pay from the required holiday pay reference period prior to the calculation date.
Under the Good Work Plan, the government has legislated to increase the holiday pay reference period to 52 weeks.
The pay reference period would usually include the last 52 weeks for which the worker was actually paid, and so excludes any weeks where they were not paid. This may mean that the actual reference period takes into account pay data from further back than 52 weeks from the date of their leave. Employers can go back up 104 weeks to obtain the required 52 weeks’ pay data.
That said, a paid week will include a week in which the worker was paid any amount whatsoever for work undertaken during that week. If no pay at all is received during a week, it should be discounted as part of the holiday pay reference period. Also, employers should discount weeks when the worker did not receive normal pay such as when in receipt of SSP.
Case law on holiday pay for zero-hours workers
In Harpur Trust v Brazel, the Supreme Court considered whether the holiday entitlement of part-year workers on permanent contracts should be prorated to that of full-year workers to reflect the fact that they do not work throughout the year. This was in the context of a music teacher on a permanent contract, employed all year round but only required to work, and only paid for work undertaken, during term time.
On the facts of the case, the Trust sought to apply the 12.07% approach (as discussed above) on the basis that this also feeds into the calculation of holiday pay, simply calculating Ms Brazel’s earnings at the end of a term and paying her one-third (of 3 terms) of 12.07% of that figure.
The Court held that to comply with the Working Time Regulations 1998, which does not provide for pro-rating, the correct calculation of holiday pay for those with no normal working hours is by reference to the hours worked over a 52-week average, rather than limited by the number of hours the worker has worked.
The result was that Ms Brazel was entitled to holiday pay at a rate of 17.5% of her earnings, rather than 12.07% received by full time staff, where no account was to be taken of the fact that she only worked for part of the year.
This decision impacts zero hour workers and others engaged on permanent ‘year-round’ contracts who are only required to work for part of the year, namely, by clarifying that holiday entitlement is 5.6 weeks per year and holiday pay should be calculated with reference to average earnings over 52 weeks and not by reference to hours worked.
DavidsonMorris’ 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 and the implications of the Good Work Plan. Contact us for advice on zero hour holiday entitlement and pay.
Zero hour contract holiday pay: FAQs
Are zero hour contract workers entitled to holiday pay?
Yes, zero hour workers are entitled to 5.6 weeks of holiday a year, payable at their usual rate of pay.
How to calculate zero hours holiday pay?
Zero hour holiday pay should be paid at the worker's normal rate. If weekly working hours vary, zero hour holiday pay is calculated using the worker's average pay over the previous 52 weeks.
How can DavidsonMorris help with zero hour contracts?
DavidsonMorris' employment lawyers are on hand to advise on any issues relating to zero hour contracts, including worker entitlements for holiday pay and time off.
Last updated: 21 September 2022