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 pay 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, where annual leave will begin to accrue as soon as a worker starts their job.
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 will usually 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, on the other hand, the worker started their job part way through a pre-set leave year, they will only be entitled to part of their total annual leave entitlement for that current leave year. Further, the worker has no automatic right to carry over any leave into the following year, although the contract may make some allowance for this.
In the case of workers on zero hour contracts, the entitlement to paid holiday technically accrues in the same way as full time employees, namely, monthly in advance at a rate of 1/12 of their annual entitlement. That said, for zero hour workers who are not retained by their employer between periods of work, it is often easier to calculate this entitlement based on the number of hours worked.
Adopting this pro-rata approach, using the calculation of 5.6 weeks of paid leave divided by 46.4 remaining weeks in the year, holiday for zero hour workers is accrued at a rate of 12.07% of the total hours worked in a year. By way of example, if a zero hour worker undertakes 20 hours work in a week, then s/he would have accrued 2.4 hours leave for that particular week, ie; 12.07% of 20.
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 from 12 to 52 weeks.
The pay reference period must 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.
That said, a paid week will include a week in which the worker was paid any amount whatsoever for work undertaken during that week. It is only if no pay at all is received during a week should it be discounted as part of the holiday pay reference period.
Zero hour contract pay for term-time workers
In Harpur Trust v Brazel  EWCA Civ 1402 the Court of Appeal 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 term time only workers is to multiply a week’s pay, based on an average of 12 weeks where this varies, by 5.6 weeks.
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.
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?
Zero hour workers are entitled to holiday pay, but the amount will depend on how much work they have performed for the employer.
How to calculate zero hours holiday pay?
All workers are entitled to a minimum of 5.6 weeks of paid holidays a year. To calculate a zero hour holiday pay entitlement, use 5.6 weeks as a percentage of the total hours worked in a year (12.07%) then multiplying this by the number of hours the zero hour contract worker has worked.
How long is the holiday reference period for zero hour holiday pay?
The holiday pay reference period increased from 12 to 52 weeks with effect from 6 April 2020.
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 and the impact of the April 2020 changes on employer policies.
Last updated: 6 February 2020