Much like the increase in flexible working practices and unlimited annual leave allowances, zero-hour contracts are another example of companies veering away from conventional 9-5 employment. However, this then begs the question, what is a zero-hour contract? And how do they work – for both businesses and employees?

Zero-hour contracts often involve irregular hours workers who have fluctuating work hours. These workers are entitled to the same statutory holiday pay as regular workers, ensuring their rights are aligned more closely with full-time employees.

What is a zero-hour contract? 

A zero-hour contract is a type of employment contract between a company and a worker. It means that you, as the employer, aren’t obliged to offer or guarantee any working hours to an individual. However, the worker is also not obliged to accept any work that you offer them, and they are also free to work for other employers. 

Now, you’ll notice that I’ve used the term ‘worker’ in the previous sentences and not employee and that’s because there is actually a distinction between the two. 

Most of the time, when an employer hires someone on a zero-hour contract, they are a ‘worker’. 

Workers have a certain employment rights, such as:

  • Being paid the national minimum wage

    • Statutory minimum rest breaks

    • Statutory paid holiday

    • Protection against unlawful wage deductions from wages

    • Protection against unlawful discrimination

    • Not being required to work more than 48 hours on average per week (and the chance to opt-out of this, if they so wish)


Employees, meanwhile, have all the same rights as workers, with a few additional rights, namely:

Zero Hours Contract Workers’ Rights

Zero hours contract workers enjoy the same employment rights as those on more traditional contracts. This includes entitlement to paid holiday, sick pay, and protection against unfair dismissal. They are also guaranteed the national minimum wage and must receive at least the statutory minimum amount of paid holiday per year. Beyond these financial rights, zero hours contract workers are entitled to fair treatment and respect in the workplace, ensuring they have access to the same benefits and opportunities as other employees.

Protection against unfair dismissal

Zero hours contract workers are safeguarded against unfair dismissal, similar to employees on other types of contracts. Employers cannot terminate their employment without a valid reason and must adhere to a fair procedure during the dismissal process. Additionally, zero hours contract workers have the right to appeal against a dismissal and can seek compensation if they are unfairly dismissed. This protection ensures that zero hours contract workers are treated justly and can challenge any wrongful termination.

Protection against unfair dismissal

An employee will have an employment contract with the company, that outlines things like working hours, notice periods, and details of the benefits and perks they’re entitled to. 

When should a company use zero-hour contracts?

The main reason to utilise zero-hour contracts is if you want a flexible workforce that you can expand or contract in line as demand for your products and services rise and falls. Jobs that might be offered on zero-hours contracts include those in hospitality, retail, agriculture, and any seasonal industries.

Zero-hour contract workers typically work varying hours each week, which provides flexibility for both employers and employees. This arrangement allows businesses to adjust staffing levels based on demand, while employees can choose how many hours they wish to work.

Pros and Cons of Zero Hours Contracts

Zero hours contracts offer both benefits and drawbacks, providing flexibility but also potential uncertainty. Here are some pros and cons:

Pros:

  • Flexibility and convenience for both employers and employees.

  • Opportunity to work on a casual or part-time basis.

  • Chance to gain experience and build skills.

  • Potential for higher earnings due to varied work opportunities.

Cons:

  • Uncertainty and insecurity regarding hours and income.

  • Lack of guaranteed hours or steady income.

  • Limited access to certain benefits and opportunities.

  • Risk of exploitation by employers due to the flexible nature of the contract.

Do staff on zero-hour contracts get annual leave?

Yes – workers on zero-hours contracts are entitled to the same statutory holiday entitlement as regular employees, which includes a minimum of 5.6 weeks of paid holiday annually. Zero-hours contract employees in the UK are entitled to holiday pay like their counterparts with fixed hours. However, they only accrue holiday while they’re actively working for the company and there isn’t a ‘break’ in their employment, as we’ll look into below.

How do you work out a zero-hour contract worker’s holiday pay?

You can calculate how much annual leave a worker on a zero-hour contract has accumulated using ‘The 12.07 rule. This rule is named for the fact that full-time employees are entitled to 5.6 weeks’ statutory holiday allowance – which works out as 12.07% of the hours (or days) they’ll work over a year. The holiday entitlement for zero-hour contract workers is set at 5.6 weeks of paid holiday each year, which translates to 28 days for someone working a standard 5-day week. The 12.07 rule simply allows you to pro-rate this holiday allowance for zero-hour workers. To calculate holiday entitlement and calculate holiday pay for zero-hour contract workers, you need to consider the actual hours worked rather than a fixed amount.

The 12.07 is as follows:

  • (12.07 ÷ 100) x number of hours worked = holiday allowance

So, let’s say that a worker on zero-hour contract has worked 200 hours:

  • 0.1207 x 200 = 24.14 = 24 hours

You would then convert this into days, which would then work out as 3 days (for a typical 8-hour day).

Similarly, if a zero-hour contract worker has been with your company for a longer spell, such as 60 days, the formula works just as well using days as opposed to hours.

  • 0.1207 x 60 = 7.242 = 7 days

To determine the average hourly pay, average hourly rate, and average pay rate, you should calculate the total earnings over the past 52 weeks and divide by the total hours worked. This ensures that holiday pay reflects what the worker would typically earn while working.

Now, to calculate the worker’s rate of holiday pay, particularly where you have workers who don’t conform to normal working hours, you should take the average of their salary over the previous 12 weeks. Calculating holiday pay for zero-hour contract workers uses the average pay the worker earns over 52 weeks. If there happen to be weeks where they didn’t work any hours, and didn’t earn anything, you need to replace those weeks with the most recent previous weeks they were paid.

Using the average weekly pay derived from the past 52 weeks of earnings is crucial to ensure compliance with UK employment law, particularly when considering statutory entitlements.

Zero-hour contract workers are entitled to contract holiday pay, which is calculated based on the actual hours worked and the average pay over the previous 52 weeks. This ensures that their holiday pay is fair and reflective of their typical earnings.

Contract breaks and annual leave

Another important feature of zero-hour contracts is the concept of breaks in employment. Some zero-hour contracts stipulate that they’re only active when your company needs the worker. If so, a break occurs when the company provides no work for a full week – running from Sunday to Saturday.

One method for calculating holiday pay for zero-hour contract workers is ‘rolled up holiday pay’. This approach involves including an additional amount in the worker’s hourly rate to cover holiday pay, ensuring they receive their holiday entitlement as part of their regular earnings. Recent legislation has clarified its acceptance as a legitimate method for employers.

During one of these contract breaks, you are required to pay the worker for any untaken annual leave that they’ve accrued. Employers must pay zero-hours contract workers for any accrued but unused holiday leave upon termination of their employment. In event of the employment being broken, the worker is not required to notify the employer or provide a period of notice.

Would you like an easier way of calculating annual leave for your zero-hour workers? ScheduleLeave automatically tracks how much annual leave they accrue, and automatically updates their allowance whenever they take a day off. Sign up for your free trial to find out just how much time ScheduleLeave will save your company.

UK Law and Zero Hours Contracts

UK law provides specific protections and entitlements for zero hours contract workers. These include the right to paid holiday, sick pay, and protection against unfair dismissal. Employers must comply with the national minimum wage and the Working Time Regulations, ensuring fair treatment of zero hours contract workers. Additionally, these workers are entitled to the same employment rights as those on other contracts, including the right to be treated fairly and with respect. This legal framework ensures that zero hours contract workers are not disadvantaged compared to their counterparts on more traditional contracts.

 

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