Holiday pay and entitlement are usually calculated based on the number of hours an employee works in a given period of time. But what if an employee’s technically not contracted to work any hours? What sort of statutory rights do zero-hours contract employees have?
In this post, we’ll explain how to calculate holiday pay and entitlement for zero-hours contract employees.
Zero Hours Contract Employees and UK Law
Like most workers, zero-hours contract employees are legally entitled to 5.6 weeks of paid holiday a year. This means that they’re also legally entitled to a week’s pay for each week of statutory leave they take.
These rights apply so long as they are working. Zero-hours contract employees do not have the same legal rights as employees on other contracts during breaks in their working. In fact, breaks in their working can even affect the sort of rights that accrue with time.
Their specific pay and entitlement is calculated based on the number of hours they work. So if you want to calculate holiday pay and entitlement for your zero-hours contract employees, you’re going to have to do a separate calculation for each individual employee.
How is it calculated? It’s quite simple!
How to Calculate Holiday Entitlement for Zero-Hours Contract Employees
For full-time employees who work five days a week, the 5.6 weeks of annual statutory holiday entitlement equates to 28 days a year. It’s up to you whether you include bank holidays in these 28 days.
Employees start to accrue leave as soon as they start working for you. Employees on fixed-term contracts will accrue leave monthly in advance, and they’ll do so at the rate of 1/12th of their annual entitlement each month.
Zero-hours contract employees will accrue leave in the same way. But because they don’t work set hours, and because they may work a different number of days each week, it’s much easier to calculate their leave based on hours.
There are 52 weeks in the year. Less the 5.6 weeks’ annual statutory holiday entitlement, employees must work for 46.4 weeks of the year. How does that translate into hours?
We can work is out as a percentage if we take that 5.6 weeks’ holiday and divide it by 46.4. It leaves us with a figure of 12.07%.
So zero-hours contract workers are entitled to a pro-rata amount of that 5.6 weeks holiday, which equates to 12.07% of the hours they work each year.
How do you calculate a zero-hours contract worker’s entitlement from this figure? Easy! You just work out 12.07% of the hours they work in a week.
Say one of your zero-hours contract employees has worked 10 hours for you in a given week. Here’s the calculation you’d have to do:
(12.07/100) x 10 hours = 1.2 hours = 72 minutes.
So a zero-hours contract employee who works 10 hours in a week will accrue 72 minutes of paid leave.
You’ll have to do this calculation every week for every zero-hours contract worker on your books. To make things a little easier, we have a great holiday entitlement calculator you can use.
How to Calculate Holiday Pay for Zero-Hours Contract Employees
Employees are entitled to a week’s pay for every week of statutory leave they take, and this week’s pay is calculated based on hours worked, and the amount they’re paid for these hours.
For zero-hours contract employees, it’s calculated based on the worker’s average pay from the previous 12 weeks – but only counting the weeks in which they were paid. So if a week passed in which they worked no hours, it won’t bring down the average. Instead, you’ll need to count back another week so that the rate is based on 12 weeks in which they received pay.
You’ll have to include all statutory pay in the average, such as sick pay, or anything paid during maternity leave. And if the zero-hours contract workers’ been employed for fewer than 12 weeks, just use the average pay rate for the full weeks they’ve worked.
If you pay your zero-hours contract employees on a monthly basis, you can work out how much they’ve paid in a week by first calculating their average hourly pay for the last month.
Just divide their month’s pay by the number of hours work, then multiply the average hourly pay by the number of hours worked each week. Do this weekly pay calculation for each of the last 12 weeks to work out that worker’s average week’s pay.
Once you reach the end of a zero-hours contract employee’s contract, you’ll have to pay them for any remaining holidays they haven’t used.
UK law specifies that if a zero-hours contract employee hasn’t worked for four weeks, you may treat it as the end of their employment. Even if you intend to offer the employee more work at a later date, you’ll still have to pay them for any untaken leave.
Zero-hours contract workers need breaks and holidays just like anyone else. Deny them this and you’ll risk no end of legal trouble while seriously compromising your business’s productivity and reputation. For more information, the government has some great resources, with lots of examples, on their website.
What you’ll learn in our 6 Reasons Why Absence Management is Failing Your Business eBook
47% of HR managers believe poor systems including paper and spreadsheets negatively impact productivity – it’s time for a change.
Download our free eBook and spot the key challenges and improve ways of working to boost HR productivity.