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Tuesday, September 21, 2021

Zero hours contracts holiday entitlement and holiday pay


By Anna Jordan on Small Business - Advice and Ideas for UK Small Businesses and SMEs

Find out how to calculate holiday entitlement for people on zero hours contracts

People on zero hours contracts are entitled to holiday and holiday pay, just like your regular staff.

In this quick guide, we’ll explain how to do it.

How do I calculate holiday entitlement?

Zero-hour contract employees, like any employee, are entitled to 5.6 weeks of paid holiday per year. This can include bank holidays if you wish. The rules around holiday entitlement are fairly loose, as long as you meet the 5.6 week minimum.

A popular method is the 12.07 per cent calculation. This is arrived at using the calculation of5.6 (weeks of paid leave) divided by 46.4 (remaining weeks in the year). So, holiday is accrued at a rate of 12.07 per cent per hour.

If a worker on a casual contract works ten hours in a week, then they would have accrued 1.2 hours holiday. (12.07 per cent of ten). If the employee worked 30 hours, they would accrue 3.6 hours of holiday for that week. (12.07 per cent of 30).

To calculate average hourly pay rate, only the hours worked and how much was paid for them should be counted. Take the average rate over the last 52 weeks. If no pay was paid in any week, count back another week so the rate is based on 52 weeks in which pay was paid. You can count back a maximum of 104 weeks to find these.  

If a worker has less than 52 weeks of pay, use the average pay rate for the full weeks they have worked.

To work out a week’s pay for someone who’s paid monthly, you can:

  • Calculate the worker’s average hourly pay for the last month. Do this by dividing the month’s pay by the number of hours worked in the month.
  • Calculate the weekly pay. Do this by multiplying the average hourly pay by the number of hours worked in a week.

Use the weekly pay calculation for each of the last 52 weeks to work out an average week’s pay.

What about breaks in employment?

The main difference between zero hours and the employed is the break in employment. A break in employment counts as seven consecutive days without work, from Sunday to the following Saturday.

If there’s a significant break in employment (four weeks is the standard), you must pay for any holiday they’ve built up and not taken.

Anything else I should know about holiday entitlement and pay?

The government says that holiday pay should be paid when annual leave is taken. You can’t include a sum for holiday pay in the hourly rate (known as ‘rolled up holiday’).

If you have any questions about holiday pay issues, contact the Advisory Concillation and Arbritration Service.

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Anna Jordan, Khareem Sudlow