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Zero Hour Contracts & Holiday Pay: Fully Explained
When it comes to zero-hour contracts and holiday pay, as an employer you likely have a good deal of questions: What does UK law say? Are workers entitled to holiday pay? How can you accurately calculate holiday entitlement for zero-hour workers?
We have you covered. We’re starting by explaining the fundamentals of zero-hour contracts in UK law…
Zero-Hour Contracts and UK Law
Zero-hour contract workers have 5.6 weeks of paid holiday a year. Like most other workers, they are legally entitled to it. In addition, they are also entitled to a salary for each week they take off for their paid holiday.
These rights remain theirs as long as they’re still working. Issues creep up if they’re not working (during breaks in their work). They don’t have the same legal rights as full-time employees during breaks in their work.
Since their holiday pay is tied up with the number of hours worked, you have to calculate the holiday pay for each zero-hour contract employee separately (since they will likely have different numbers of hours worked).
In the examples below, we’ll show you how to calculate zero-hour contract holiday pay without worry…
Calculating Zero-Hour Contract Holiday Pay
Full-time employees receive 5.6 weeks (or 28 days) of mandatory annual holiday entitlement. As an employer, you can decide if you want to include bank holidays in those 28 days or if you want to add up bank holidays to those 28 days, giving your employees up to 36 days of holiday entitlement in total.
Full-time employees start to accumulate their holiday entitlement as soon as they start work in your organisation. Those who have a fixed-term contract will accumulate holiday entitlement in advance, on a monthly basis. But it’s a bit different when it comes to calculations for zero-hour contract workers.
How To Calculate Zero-Hour Contract Holiday Entitlement
Even though zero-hour contract employees accumulate their holiday entitlement the same way as fixed employees do (as soon as they start working), the calculations for their work are different because of the nature of their contract.
Expert Insight: You don’t calculate their leave based on the number of weeks worked because it’s not a fixed amount. Instead, you calculate their holiday entitlement by calculating the number of hours worked.
Let’s crunch some numbers:
There are 52 weeks in a single year. Once you deduct the 5.6 weeks of holiday entitlement from that number, you get that the employees should work 46.4 weeks in a single year.
These 5.6 weeks amount to 12.07% of all the hours an employee may work in a single year. So to generate holiday entitlement for zero-hour contract workers, you need to take their number of hours worked and multiply it by 12.07%.
If you had a zero-hour contract employee work for 77 hours in a single month, then their holiday entitlement would be:
Hours worked in month x 12.07%
77 hours x 12.07% = 9.29 hours
So the zero-hour contract worker has the right to 9.29 hours of holiday entitlement. You can even use the government’s website to calculate your zero-hour contract workers’ holiday entitlement.
Let’s now check how you can calculate holiday pay for your zero-hour contract employees…
Zero Hour Contract Holiday Pay Formula
Full-time employees have their holidays calculated based on the number of weeks they have worked (since they work a fixed weekly schedule). Zero-hour contract works, on the other hand, require calculating holiday pay not based on weeks, but on hours.
Zero-hour contract employees receive holiday pay based on their average pay in the previous 12 weeks. There’s a caveat though— you need to calculate only the weeks in which contracted employees were actually paid.
For example, let’s meet Mark. Mark is a zero-hour contract worker who, in the past 15 weeks, worked in blocks of 4 weeks. He worked 4 weeks in a row and followed that up by taking a week off work.
So in the past 15 weeks, Mark worked 12 weeks and rested for 3 weeks. Let’s break it down:
Mark worked 4 weeks
Mark took 1 week off
Mark worked another 4 weeks
Mark took 1 week off work
Mark then worked another 4 weeks
Mark took another week off
When calculating Mark’s zero-hour contract holiday pay, you would only calculate the 12 weeks where Mark worked and got paid.
If a contracted employee has been working less than 12 weeks in your organisation, you should just average the pay rate they received when they worked full weeks.
For contract workers who are paid monthly, you should:
Calculate their average hourly pay from the previous month
Divide their pay from the last month by the number of hours worked in the previous month
Multiply that number with the number of hours they worked each week
Repeat this calculation over the next 12 weeks
Here’s an example:
Mark received £1,930 last month and worked a total of 56 hours in that month.
You divide £1,930 with 56 hours to get their average hourly pay— £34.46.
Mark worked the first three weeks for 10 hours each week and then worked in the fourth week for 16 hours
Multiply Mark’s average hourly pay of £34.46 with the number of hours he worked each week.
In the first week, Mark made £344.64.
In the second week, Mark made £344.64.
In the third week, Mark made £344.64.
In the fourth week, Mark made £551.36.
Using HR Software To Calculate Holiday Pay
Noticing a lot of manual calculations? Many HR professionals spend hours calculating how much employees are owed and making sure all of their records are up to date.
But, they don’t have to spend that time (and the potential manual error that comes with it). Personio can help manage employee holidays with ease, calculating entitlements automatically and making it easy for employees to request holidays.
That includes full-time, part-time and zero-hour contract workers. Everyone can use the system and enjoy using it, as well.
Automate Holiday Pay Calculations With Software
Calculating zero-hour contract holiday pay can often be a strenuous task. It requires being updated when it comes to employment law, tracking hours across your organisation and ensuring that holiday entitlement and pay are calculated flawlessly.
To avoid all these potential traps, consider an all-in-one HRIS like Personio, to help bring HR order to your organisation today. Start by booking your own demo right now.
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