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How to Calculate Holiday Pay & Entitlement For Zero Hours Contracts

5 January 2023 6 min read

zero hours contracts holiday entitlement

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, or who commence working with you part way through the holiday year, 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 are also entitled to 5.6 weeks of annual statutory holiday, but the days or hours that this equates to will depend on the amount that they work per week.

A zero-hours contract employee will work less than the full-time equivalent (FTE) hours in a week. Therefore, this workers version of 5.6 weeks holiday will be different from a full-time worker. The number of days holiday that a zero-hours contract worker should be given will depend on the number of days or hours that they work each week, calculated as 5.6 of their normal working weeks.

For example, if they work two days a week (0.4 of FTE), they are entitled to 11.2 days’ holiday. So the calculation is their rate of FTE multiplied by 28 (the number of days that a full-time worker would receive). To make things a little easier, we have a great holiday entitlement calculator you can use.

Using this calculation ensures they still get 5.6 weeks’ holiday, but this is based on their contracted hours, so that they don’t appear to be treated more favourably than a full-time worker.

Replacing the Percentage Method

The current method of calculating zero-hours contract workers holiday entitlement came into effect in late 2022 after the Brazel v Harpur Trust case. Before that, “the Percentage Method” was widely accepted as being the best way to calculate entitlement, and it was even recommended by sector bodies including The Advisory, Conciliation and Arbitration Service (ACAS).

The percentage method is based on giving entitlement on a pro-rata basis. There are 52 weeks in the year. Less than the 5.6 weeks’ annual statutory holiday entitlement, employees must work for 46.4 weeks of the year.

If you then 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 had their holiday entitlement calculated based on 12.07% of the hours they worked each year.

For example, if a zero-hours contracted employee had worked 15 hours each week, then the holiday entitlement would equate to 15 x 12.07% = 1.8 hours. If they worked the same hours every week then they would be entitled to 94 hours over the year, or 11.7 days (based on an 8 hour working day).

Although the percentage method is no longer accepted for statutory holiday entitlement, you are still able to pro-rate any additional holiday you offer, on either a contractual or discretionary basis, based on the number of weeks the worker actually works per year.

The Impact of Harpur Trust v Brazel

The current method of calculating annual leave for zero-hours contract employees (and other part-year workers) has only been in effect since late 2022, following on from the Harpur Trust v Brazel case.

This high profile case revolved around an employee (Brazel) of an academy trust (Harpur Trust), where she was on a permanent contract on a zero hours basis. Her holiday entitlement was being calculated using “the Percentage Method”, and she argued that this was not consistent with employment legislation.

The Supreme Court ruled in her favour, based on the fact that the Working Time Regulations 1998 (“WTR”) specifies that workers are entitled to a minimum of 5.6 weeks of paid holiday per year. It does not say that this is based on the number of hours, days or weeks worked, so it should apply to all employees.

This includes zero-hours contract workers, part-year employees (such as teaching staff) and all other part-time workers.

So every employee should receive 5.6 weeks of holiday. Where the percentage method is based on calculating holiday at a pro-rata amount of the hours or days worked, this new method is all about defining what a typical ‘week’ means to each employee and working out the holiday from there.

How to Calculate Holiday Pay for Zero-Hours Contract Employees

The Supreme Court decision also had an effect on holiday pay. Employers can no longer work this out by multiplying the number of hours they have worked per week by 12.07%.

Instead, they must now work out their weekly pay by averaging their pay over the previous 52 weeks, ignoring any weeks where they are on holiday, on unpaid leave, or not working.

That amount will be their “week’s pay”. So if they take a week’s holiday, that’s the amount you must pay them. If they take less than a week’s holiday, you will have to work this out as a percentage of a week, and calculate the pay accordingly.

You’ll have to include all statutory pay in the average, such as sick pay, or anything paid during maternity leave. And if workers with zero-hours contracts have been employed for fewer than 12 weeks, just use the average pay rate for the full weeks they’ve worked.

And Finally

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.


Katrina Bennett People Director at edays
Katrina
January 5, 2023

Katrina is edays' own People Director with significant UK and international experience in delivering people strategy and value-adding HR solutions across a range of organisations and sectors (including Arriva, Boots, Rolls Royce, the utility and charity sectors). Katrina has over 20 years of experience in Human Resources and is CIPD qualified.