Calculating zero-hours contract holiday pay
At first glance, a ‘zero-hours’ contract sounds like a contradiction. How do you employ someone to work zero hours? Well, you don’t. Zero-hours contracts don’t mean there’ll never be any work, just that no hours are guaranteed. Instead, hours are offered when there’s enough demand, just like with other types of casual employment contract.
They’ve become increasingly popular over the years, and the latest figures show there are now around 1,000,000 people employed on zero-hours contracts in the UK. That’s approximately 3.2% of the working population, up from just 0.8% 20 years ago.
We’re not going to go into detail about the causes behind the boom in these types of employment agreements. Instead, we’re here to help you understand the rules around zero-hours contract holiday entitlement and pay.
What is a zero-hours contract?
Zero-hours contracts are a form of employment contract that don’t include any set number of working hours. That means there’s no minimum amount of work someone on a zero-hours contract will 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. If you’re employed on a zero-hours basis, you can technically go months without being offered hours, and it’s perfectly legal. Likewise there is no legal bind on you to accept any work that is offered.
Common jobs that might be offered on zero-hours contracts include positions in hospitality, retail, and seasonal businesses.
UK zero-hours contract rights
Despite the cavalier approach to income security that comes as part and parcel of a zero-hours contract, you still have rights if you’re on one. Just like anybody else in employment, you have the legal right to:
· The National Minimum Wage
· Statutory paid holiday allowance
· Take on other employment at your will
Along with these basic employment rights, you’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 though, 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 on an hourly basis. Essentially, it means 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
So, now 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 are 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.
Calculating their hourly rate
Not all workers will be paid an hourly rate, in which case you’ll need to calculate one.
Take the total of hours worked over the last 52 weeks worked, and how much was paid for them, work out the average.
If there are weeks that no pay was made then you’ll need to count back another week so the hourly rate is based on 52 weeks of paid work. But this is capped at 104 weeks.
And finally, if they have less than 52 weeks of pay, just use the average for 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 a HR or payroll professional for some clarification. 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.