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Calculating holiday pay for zero hours contracts

July 25, 2017 9:19am All News Stories  Employment Law News  holiday pay zero hours contracts

Are you bashing your head against the wall wondering what are the rights of those on zero hours contracts?

You are not alone. This is why we have created an Employer’s Definitive Guide to Zero Hours Contracts. Download it for free to find out the pros and cons on these contracts, what the law says, what rights they are entitled to and our top tips when engaging individuals on this basis.

Exclusive bonus: Download the Definitive Employer’s Guide to Zero Hours Contracts to get insider HR knowledge about how to stay compliant when using these contracts.

Many employers find it extremely difficult to work out how to calculate entitlements for workers or employees with variable hours. In this article, we will make sense of it all and explain how to work out annual leave entitlements, holiday pay and payment in lieu of leave for those on zero hours contracts.

Annual leave allowance and accrual

The law gives workers and employees the right to at least 5.6 weeks (28 days) of paid annual leave per year, which can include bank holidays. If an employee works part-time, they are entitled to a pro-rated entitlement. Part-time leave is calculated by multiplying the number of days worked per week by 5.6. For example, if they work three day weeks, they will be entitled to 16.8 (i.e. 5.6 x 3) days of paid annual leave. Of course, if you offer more than 5.6 weeks’ annual leave each year, the full amount should be pro-rated.

As soon as someone starts a new job, they begin to accrue leave. If they begin a job mid-way through the year, they will have the right to only a part of their allowance. They will accrue one twelfth of their leave in each month.

The rules above do not translate easily for those on zero hours contracts who work different hours each week. This is why the easiest way to determine holiday accrual for those on zero hours contracts is by calculating it on the basis of the hours they have actually worked. The holiday entitlement of 5.6 weeks is equivalent to 12.07% of the hours they have worked. For example, if they have worked 12 hours, they have the right to 144.8 minutes of leave.

You also need to think about how assignments are structured. If an employee or worker engaged on a zero hours contract is on an umbrella contract, they will accrue leave during the entire duration of the contract, whether or not they are working. However if an employee or worker is on separate and severable assignments, their annual leave entitlement will only accrue while they are working.

Holiday pay

Holiday pay has been an issue that has long been causing headaches for employers.

The general rule is that for workers with fixed working hours, holiday pay amounts to their weekly normal remuneration.

For employees or workers whose hours differ from week to week, holiday pay will be calculated on the average pay the employee earned in the past 12 weeks in which they were paid. For a worker or employee on a zero hours contract, there may be a week when they have not worked at all. If this is the case, you need to count back a week to ensure that the rate is based on 12 weeks in which they were paid.

Payment in lieu of leave

You cannot pay a worker pay or employee in lieu of holidays. The only exception is upon termination of the employment relationship.

At the end of an assignment, the employer needs to pay the worker in lieu of any accrued but untaken holiday. If there is an umbrella contract, you can only pay a worker or employee in lieu at the end of the contract, not at any times when they are simply not working as the contract is still in existence.

One last thing…

Find out more about these types of contracts by downloading for our free Employer’s Definitive Guide to Zero Hours Contracts. The guide will answer your questions, giving you an insight into the law, government policy and best practice. We will also share our expert tips and highlight some key areas where you need to tread to carefully to avoid ending up in an Employment Tribunal.

 Exclusive bonus: Download the Definitive Employer’s Guide to Zero Hours Contracts to get insider HR knowledge about how to stay compliant when using these contracts.

Our Employment Law Advisers are also on hand to ensure that you understand your legal obligations and can comply with the law.

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