Zero-hours contracts can sound a bit confusing. But it just means that employees aren’t guaranteed any set number of working hours per week.
Instead, hours are offered when there’s enough demand, just like other casual employment contracts.
We’re here to take you through what zero-hours contracts can look like in practice, and how the new updates coming with the Employment Rights Bill will change that.
What is a zero-hours contract?
A zero-hours contract is a form of employment contract that doesn’t include any set number of working hours. That means there’s no minimum amount of work someone can get in any given week – hence the name.
The rules of zero-hours contracts mean there’s no obligation on either side of the agreement to offer or accept work. As an employer, you’re not legally obligated to offer any work to employees on zero-hours contracts. You could technically go for weeks, even months, without a phoning in an employee for a shift offer, and that's perfectly legal.
But it swings both ways! Workers aren’t under any legal obligation to say "yes" to any work offered. If a shift pops up and they’re not feeling up to it or have other plans, they’re usually within their rights to turn it down without any penalties.
You'll often find these flexible arrangements popping up in sectors where staffing needs can get a bit unpredictable, like in hospitality, retail, and seasonal businesses. Zero-hours contracts can give these industries the dexterity to staff up and down as needed.
Why have zero-hour contracts become so popular?
The latest figures show that around 1,000,000 people in the UK are employed on zero-hours contracts. That’s approximately 3.2% of the working population, up from just 0.8% 20 years ago. But why? Well, there are a few key reasons for both employers and employees:
From the business's point of view:
- Flexibility is king: Zero-hours contracts offer a tonne of flexibility for businesses, especially those where staffing demands can be a bit up and down. Employers can ramp up staffing when things get busy and then scale back just as quickly when things settle down. These contracts allow them to match their workforce to their immediate needs without being tied into paying someone for hours they don't need.
- Keeping costs down: It can also be a way for businesses to manage their labour costs more tightly. They only pay for the hours actually worked, which can be appealing, especially for companies working with tight budgets. This way, they might not have to fork out for things like guaranteed minimum hours or some of the benefits that come with more traditional employment contracts.
- Trialling employees: Sometimes, a zero-hours contract can be used as a way to test the waters with a potential employee - like a probation period. It gives the employer a chance to see how someone fits into the team and performs without committing to a longer-term contract straight away.
From the employee's point of view
- Flexibility’s great for them, too: It's not all one-sided. For some employees, a zero-hours contract's flexibility can be a plus. Maybe they're students, have caring responsibilities, or just want a job that fits around other commitments. Being able to pick up shifts when it suits them can be pretty appealing.
- A foot in the door: For people who might struggle to find more permanent work, a zero-hours contract can sometimes be a way to start in a particular industry or with a specific company. It might not be ideal long-term, but it's something to get them going and build experience.
UK zero-hours contract rights
Zero-hours contracts can feel like a bit of a gamble sometimes, but it’s important to remember that zero-hours employees have the same rights as those on full- or part-time contracts. They’ve got the legal right to:
- The National Minimum Wage: This is a big one. No matter how many or how few hours someone works, they must be paid at least the legal minimum wage for every hour they work. The rates usually change each April, so it's always worth keeping an eye on the official Gov.uk website for the latest figures.
- Statutory paid holiday allowance: Even without guaranteed hours, they’re still legally entitled to paid holiday. The way it's calculated is slightly different, but the right to paid time off still exists. The current statutory minimum is 5.6 weeks of paid holiday per year, pro rata, of course, based on the hours they actually work. Again, you can find more info on holiday entitlement on Gov.uk.
- The freedom to take on other employment at will: Unless there's a very specific and justifiable clause in their zero-hours contract (which are actually quite rare and need to be pretty reasonable), you generally can't stop your zero-hours employees from working for other companies at the same time. They’ve got the right to take on multiple jobs to boost their income.
Along with these basic employment rights, they’re also entitled to the same rights and benefits outlined in standard health and safety legislation and working time regulations as anyone else.
Calculating zero-hours contract holiday entitlement
Statutory minimum holiday entitlement is set at 5.6 weeks. That makes calculating minimum holiday entitlement for anyone on a full-time, five-day-a-week, 52-weeks-a-year contract easy – they just get 5.6 weeks (equivalent to 28 days) off each year.
The calculation gets difficult when they don’t work fixed or regular hours, as is the case for anyone on a zero-hours contract. It’s not really feasible to calculate holiday allowance based on regular monthly accrual when someone doesn’t work the same hours every month, let alone every week.
The 12.07 rule
Instead, you can use the 12.07 rule to calculate their holiday entitlement based on hours worked. The 12.07 rule uses the fact that 5.6 weeks out of 52 weeks a year is 12.07% to create a parallel calculation for pro-rata holiday accrual hourly. Essentially, for every hour worked, someone on a zero-hours contract accrues roughly seven minutes of paid holiday.
This rule makes calculating zero-hours holiday entitlement easy – just take 12.07% of the sum of hours worked in a week to arrive at the amount of holiday accrued.
It’s really that simple: 1 hour worked = 7 minutes of holiday.
Calculating zero-hours contract holiday pay
Now that you know how to calculate holiday entitlement for people on zero-hours contracts, all that’s left is to know how much to pay them when they’re on holiday. This is relatively simple—for every hour of accrued holiday they take, you pay them their regular hourly wage. The complexity is in calculating an hourly rate.
Not everyone on a zero-hours contract will be on a simple hourly rate. Some might get paid a day rate, or it might vary depending on the shift. In those cases, you'll need to calculate an average hourly rate for their holiday pay. Here's how you do it:
- Take a look at the total number of hours the employee has worked for you over the past 52 weeks.
- Then, add up the total amount of money they were paid for those same 52 weeks of work.
- To get their average hourly rate, simply divide the total amount paid by the total number of hours they worked during those 52 weeks. Bob's your uncle – that's their average hourly rate for holiday pay!
What about weeks with no pay?
Life isn't always straightforward, and there might be weeks within that yearly period when the employee didn't work any hours and, therefore, didn't get paid.
If that happens, you can't include those zero-pay weeks in your calculation of the average hourly rate.
Instead, you'll need to go back another week in your records so that your calculation is based on a full 52 weeks of actual paid work. However, there's a limit to this – you can only go back a maximum of 104 weeks in total.
What if they haven't worked 52 weeks yet?
Finally, if they have less than 52 weeks of pay, use the average of all the weeks they have worked.
If you’re confused about which of these methods you should be using, it’s worth reaching out to an HR or payroll professional for help. The most important thing is that you comply with the rules of holiday entitlement, no matter what type of employment contract you use, to ensure employees get a fair amount of time off.
Changes to zero-hours contracts with the ERB
The new Employment Rights Bill (ERB) is due to almost completely overhaul zero-hours contracts.
As of late May, early June 2025, the fine details are still being ironed out. But we can expect to see that this will give all employees a right to guaranteed hours based on their average or regular hours worked over a 12 week period.
There’s also going to be new regulations and penalties around the right to reasonable notice of cancellation, shortening, or moving of shifts. So, employers, keep this in mind: you won’t be able to ask people to come in at the last minute or suddenly cut them if you realise you don’t need them. If this is found to be the case, you’ll have to provide employees with compensation for the hours they should have worked anyway!
Making zero-hours holiday pay hassle-free
As we've seen, whilst zero-hours contracts offer flexibility, they also bring a few things that we need to consider when it comes to things like holiday entitlement and pay. Making sure your calculations are spot on and paying your people correctly is not only a legal requirement, but also a key part of treating your team fairly.
When you’ve got a mix of contracts to organise, keeping on top of who’s owed what can get a bit confusing. That's where something like Timetastic's staff holiday planner can save the day.
It helps you keep all your ducks in a row regarding holidays, even for your zero-hours team. It’s the perfect tool for making sure everyone gets their fair share of time off, without you having to spend hours with a calculator. Easy peasy!
So, if you want to make holiday management software one less thing to worry about, especially with the quirks of zero-hours contracts, why not try Timetastic for 30 days FREE of charge?