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? 

What is a zero-hour contract? 

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:

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.

Do staff on zero-hour contracts get annual leave?

Yes – workers on zero-hours contracts are entitled to annual leave, just like those formally employed by the company. 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 allowance? 

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 12.07 rule simply allows you to pro-rate this holiday allowance for zero-hour workers. 

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

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. 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. 

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. 

During one of these contract breaks, you are required to pay the worker for any untaken annual leave that they’ve accrued. 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.