Understanding Holiday Pay for Zero Hours Contract Workers

Rachel Greenway

, Senior Copywriter

Last updated on July 19, 2024

Working out holiday pay for zero-hours contract workers might sound complex. But it doesn’t have to be.

For regular workers, holiday pay is calculated based on the number of hours an employee works during a specific period. But where an employee is on an ‘irregular’ contract and doesn’t work a set number of hours each week or pay period, you can still work out how much they should be paid for their time off.

So, let’s get to grips with how zero-hour contract holiday entitlement & pay works, from defining what zero-hour contracts are all about to understanding the statutory rights afforded to irregular workers. We’ll also cover how to calculate zero-hour contract holiday pay, no matter how big or small your workforce is.

But first, things, first…

What is a zero-hours contract?

Let’s start with some basics. What exactly is a zero-hours contract? Put simply, it’s a type of employment arrangement whereby you, the employer, don’t need to set in stone the amount of hours an employee should be working for you.

These contracts are flexible by nature and provide both the employer and employee room to manoeuvre when it comes to scheduling the number of hours that irregular staff members should work. Work doesn’t have to be consistent. In other words, people on these types of contracts can agree to shifts ‘as and when’.

Delivery drivers, care and hospitality workers, and gig economy workers are common examples of workers on zero-hour arrangements.

What does UK law say about zero-hour contracts?

It’s important to be aware of the legal obligations, particularly when it comes to working out holiday entitlement for zero-hour contracts.

Irregular workers can either be classed as ‘employees’ or ‘workers’. For clarity, rights are based on employment status, not contract type. So, while you might have several employees on zero-hour contracts, they might have different rights depending on their classification.

If the person you’ve hired is a worker, then at a minimum, they’ll be entitled to certain statutory benefits such as:

The National Minimum and National Living Wage
Holiday entitlement and pay
Breaks for rest
Protection from discrimination
The right to receive payslips

If they’re hired as an ‘employee’, then this list of rights extends to include things like Statutory Sick Pay (SSP), parental leave and protection from unfair dismissal.

This list of rights isn’t exhaustive, so we recommend checking out this Acas resource for a more comprehensive list of the rights afforded to workers and employees.

Do zero-hour workers get holiday pay in the UK?

Just like any other irregular worker, people on zero-hours contracts are entitled to holiday pay in the UK. Paid annual leave is a statutory right under the Working Time Regulations 1998 and, therefore, should never be withheld, even if a worker is on this type of contract.

How is Holiday Pay Calculated for zero-hour contracts?

Calculating holiday pay on a zero-hours contract might sound tricky due to the irregular nature of the working hours. But you can work it out easily by using either one of the following methods: accrued annual leave or rolled-up holiday pay.

Holiday pay for irregular workers: the accrued annual leave method

In this first method, the worker accrues a bank of leave as an entitlement. So, they’ll have an annual leave entitlement that they can take, just like a regular worker. The entitlement is calculated as a percentage of the hours worked in the pay period.

In most cases, this will be 12.07%, but this percentage might be higher if their entitlement exceeds the statutory minimum. For now, let’s assume the percentage we’ll use at the end of this calculation is 12.07%.

Legislation bytes 👩🏼‍⚖️

It’s important to point out that this calculation will look different if the worker is taking statutory sick or parental leave. But let’s first cover what a standard accrual calculation would look like.

Example: Holiday entitlement using the accrued annual leave calculation

Sanjip works 62 basic hours in July, and works 18 hours on nightshift. In total, he’s worked 80 hours. He accrues 12.07% of the hours he works as an annual leave entitlement.

It’s calculated as follows:

80 hours/ divided by 100 = 0.8

0.8 hours multiplied by 12.07 =9.656

Rounded up or down to the nearest hour = 9 hours

Now let’s look at an example of a calculation where the worker is on statutory paternity leave…

Example: Holiday entitlement using the accrued annual leave method on statutory sick or parental leave

Sanjip takes two weeks of statutory paternity leave. All workers are entitled to accrue annual leave even while on statutory sick or parental leave. As he’s not working his usual hours in those weeks, we need to calculate how many hours he would normally work in a week, so he can accrue annual leave based on those usual hours.

The usual hours are calculated as an average of the hours worked over the last 52 weeks. We exclude weeks that were on statutory sick or parental leave, but include weeks that they didn’t work over the last 52 weeks.

To simplify the calculation we’ll use 5 weeks (also used later):

Week 1 - 35 hours

Week 2 - Unworked

Week 3 - Sick leave (excluded)

Week 4 - 14 hours

Week 5 - 18 hours

We can ignore week 3 because Sanjip was on sick leave that wee. However we still need to include the unworked week.

Total hours: 67

Average hours: 67/4 weeks = 16.75

Rounded up or down to the nearest half hour: 17 hours

Based on his average weekly hours, we can calculate 12.07%, so he’s accrued a further 2.052 (rounded to 3 decimal places) hours, for each week of statutory leave, 4.104 hours, rounded up or down to the nearest hour, 4 hours.

Now Sanjip has an annual leave entitlement, when he takes any of his entitlement, we need to calculate how much to pay him.

In working out holiday pay for zero-hour contract workers using this method, you’ll first need to work out their average weekly pay. It’s important to consider how statutory leave affects this and, consequently, what they’ll be paid. While away on leave, such as sick or parental leave, workers must still accrue annual leave.

Example: holiday pay calculation using the accrued annual leave method

Sanjip has worked three out of the last five weeks. He didn’t work the second week and was off sick the third. On average, Sanjip works 2.5 days a week. Here’s how you’d work out their average weekly pay.

As we just mentioned, you’ll need to work out Sanjip’s average weekly pay using up to 52 weeks of pay history. Just like we do with regular workers in Great Britain, you’ll need to look back up to 104 weeks to get 52 weeks of data. In the interest of time (and space!), we’ll only look at Sanjip’s last five weeks.

In working out the average weekly pay, you’ll want to exclude any weeks that weren’t worked or where that employee was off sick.

First, list out all the totals they’ve been paid for each week.

Week 1 - Paid £550

Week 2 - Unworked

Week 3 - Sick leave

Week 4 - Paid £700

Week 5 - Paid £400

Next, you’ll want to add these together to get the total sum paid.

Total pay: £1,650

Finally, you’ll need to divide this total by the number of weeks worked, and then then average number days worked in a week.

Average weekly pay: £1,650/5 weeks = £550 per week

Average daily pay: £550/2.5 days = £220 per day

You now have the average daily rate of pay you’ll need to pay Sanjip for each holiday day they take.

Holiday pay for irregular workers: the rolled-up holiday pay (RHP) method

The second method for working out zero-hour holiday pay is the rolled-up holiday (RHP) method.

In 2006, the European Court of Justice deemed rolled-up holiday pay unlawful, which left many employers in limbo about what was actually allowed. However, the new legislation clears things up, and employers can now lawfully use rolled-up holiday pay as a legitimate method to calculate holiday pay for irregular and part-year workers.

You can see a more in-depth breakdown of how to calculate RHP in our rolled-up holiday pay post. We also explain how to calculate the relevant percentage if your workers are entitled to more than the statutory minimum amount of paid holiday.

Are there any disadvantages to zero-hour contracts?

While zero-hours contracts offer flexibility, there are a few things workers might want to bear in mind:

Income can be less consistent: The lack of guaranteed hours can make it difficult for workers to manage their finances.
They offer fewer employment benefits: Access to benefits such as mortgages or loans can be limited due to variable income.
Work-life balance can be strained: Uncertainty in work schedules can affect personal life and job security.

Can Zero Hour Workers Carry Over Holiday Pay?

Yes, Just like other workers, zero-hours contract employees are allowed to carry over some holiday pay into the next leave year if they’re unable to take all their statutory leave during the current year. But just like with regular workers, this is limited to 1.6 weeks, except where they’ve been on long term statutory leave.

Getting holiday pay right with PayFit

Calculating holiday pay can get pretty complex. But PayFit takes some of the sting out of this work by automating calculations for regular-hour workers. In addition to this, our payslips break down exactly what rates we’ve used for holiday pay calculations and you can also override holiday pay when splitting basic and normal rates.

Our help centre and blog are chock-full of helpful articles that simplify legislation and calculations so you never have to feel lost when it comes to payroll again.

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