Zero-Hour Contracts and Holiday Pay Implications: Pro-Rata Method of 12.07% is No Longer Acceptable


This article talks about the rules for holiday pay for people with zero-hour contracts. Which are common in the British economy.

Advantages of Zero-Hour Agreements

The Employment Rights Act (ERA) of 1996 defines a “zero-hour contract” as an employment agreement. The employee agrees to work only if and when their employer has work for them to do. The employee is not guaranteed any work.

  • If an employer wants or needs an employee to do certain tasks or provide certain services. The employer gives the employee those chances.
  • Employers are not required by law to offer a certain number of hours or even to offer work. Neither are workers required to take any job that is offered to them. When jobs become available, the company will offer them to employees, who are free to take them or not.
  • In reality, the term “zero-hour contract” refers to a wide range of short-term contracts that companies use when they need a ready pool of workers to meet changing demand or temporary staff shortages. The hotel business may require this, especially during busy times or for special events. Roles in the gig economy, like those at Deliveroo and Uber, often involve hiring people on a contract basis instead of full-time.
  • Due to the unpredictability of zero-hour contracts. Workers may have gaps in their employment that keep them from getting enough service time to qualify for more legal protections. However, even if the work schedule changes, the employee remains entitled to receive compensation for any unused paid holidays. There can’t be a payment in place of paid holidays unless the employee’s job is over.

Legal Rights Under the Zero-Hour Contract

  • Even though zero-hour contracts aren’t strict in relation to providing a minimum number of hours. They still have legal rights and responsibilities. The legal entitlements that stand out the most are the right to receive at least the federal minimum wage and the right to a minimum number of paid holidays.
  • Upon accepting the job offer and commencing work. The person becomes entitled to a minimum hourly wage for the hours worked. Additionally, the employee begins receiving the legally mandated minimum amount of zero-hour holiday pay.
  • During the first year of work, an employer may want a worker to put in a certain number of hours before he or she can take a zero-hour holiday. A system that works this way is called an accrual system. For example, if an employee has only been working for one month. They may only be eligible for one month’s worth of zero-hour holiday time.
  • The law dictates that an employee’s job continuity breaks if they remain out of work for a full calendar week. Spanning from Sunday to the following Saturday, covering seven consecutive days.
  • However, if the worker has maintained continuous work under a zero-hour contract without breaks exceeding seven days. they might not need to wait a year to receive paid time off. Due to the terms of their contracts, employees may be able to get more than the minimum pay or paid time off that the state requires.

Zero-Hour Contract Workers Don’t Get Enough Paid Time Off.

The Working Time Regulations of 1998 ensure that all employees, including those with zero-hour contracts or variable schedules, are entitled to 5.6 weeks of paid zero-hour holiday annually. This guarantees that unless the worker is part-time or on a fixed-term contract, they receive the same duration of zero-hour holiday as full-time employees. Following the Harpur Trust v. Brazel case in 2022, zero-hour contract workers are no longer permitted to calculate their holiday pay using the pro-rata method of 12.07% of their gross wages.

But an employer can add bank and public holidays to a worker’s statutory zero-hour holiday time. Employers must tell new hires about their statutory leave year, it may be a tax year or a calendar year depending on company policy.

If There Hasn’t Been a Leave Year Set Up, This Will Start on The First Day of Work

As soon as an employee starts working, annual leave starts to add up. If an employee starts working in the middle of a leave year, they can only take the amount of leave they have already earned. Theoretically, zero-hour contract workers earn their first year of paid zero-hour holidays at the same rate as full-time workers, which is 1/12 of their annual entitlement each month in advance.

Even if the employee’s contract says he or she can carry over zero-hour holiday time to the next year, the employee cannot do this.

Holiday Pay for People with Zero-Hour Contracts

According to the law, any worker taking statutory leave is due one week’s pay. The payment amount depends on the hours worked and the corresponding earnings. The principle aims to ensure that a worker receives the same pay during zero-hour holidays as they would while actively working.

Employers frequently determine a zero-hour worker’s entitled paid time off by averaging their weekly earnings over the mandatory holiday pay reference period preceding the calculation date, considering the variable or uncertain nature of their work schedule.

Under the Good Work Plan, the government has changed the number of weeks used to figure out holiday pay to 52.

The typical practice involves using the last 52 weeks during which the employee received payment as the pay reference period, thereby excluding weeks without any payment. This could mean that the reference period includes paying information from a time more than 52 weeks before the employee went on leave. For the required 52 weeks of wage information, employers can look as far back as 104 weeks.

A paid week refers to any week during which the worker received payment for the work performed. If a week lacks any payment, it should be excluded from the reference period for holiday pay calculation. Also, employers should cut down on the number of weeks. When an employee doesn’t get standard pay, like when they are getting SSP.

Case Law About Holiday Pay for People With Zero Hours

Throughout the year, a music teacher with a permanent contract was employed. But was only obligated to work and received payment for the work completed during the school year.

The Trust had previously calculated Ms. Brazel’s salary at the end of each term. They had given her one-third (12.07%) of that amount for each of the three terms. Which contravenes the Working Time Regulations of 1998 that prohibit pro-rating.

The Court determined that the optimal method to calculate holiday pay for workers with irregular hours is by averaging their hours over the past 52 weeks.

Because Ms. Brazel only worked part-time. Her holiday pay was worth 17.5% of her salary, which was more than the 12.07% that full-time workers got.

This decision will affect people who work on “zero-hour” contracts or “year-round” contracts. Where they only have to work part of the year. It says that people are entitled to 5.6 weeks of zero-hour holiday per year and that zero-hour holiday pay should be based on average earnings over 52 weeks, not hours worked.

Taxsteins Ltd to the Rescue

Taxsteins Ltd knows a lot about both the rights employees have by law and the rights they have by contract. We’ve got your back when it comes to dealing with people who don’t have set hours. We can help you figure out how much holiday pay to give employees with zero-hour contracts. Answer questions about what the Good Work Plan means for your business. If you have questions about whether or not you should get holiday pay for working zero hours. Please contact us at 02071559545.