Holiday entitlement for zero hours contracts

Those on zero hours contracts are entitled to holiday and pay as are all workers. But zero hours workers are often highly variable in their hours and the “average pay of the last eight or twelve weeks” formula can be grossly unfair to a worker with fewer hours in those weeks running up to a holiday period.

There are a solutions.

Adding 12.07% to the hourly rate is a popular and practical solution. 12.07% is effectively the extra pay a regular employee gets over and above the weeks they actually work. That is 5.6 weeks holiday (and pay) for 46.4 weeks worked. 5.6 weeks divided by 46.4 weeks yields 12.07 as a percentage. The process is known as “rolled up” holiday pay.

Many of our clients use this solution and we are not aware of any practical difficulties arising in its application. Perhaps the main point to be aware of is the need to make sure that the 12.07% is specified separately on the payslip. If you include it within the pay rate then employees can forget and it may lead to disputes later.

But for a few employers there is still a another difficulty. That is when does a zero hours person take their holiday and – if they spend the 12.07% on routine bills – what will they live on when they do take holiday? This dis-incentive to take holiday falls foul of European legislation and there have been attempts, with varying success, to challenge rolled up holiday pay.

A new solution, which we are trialling , is for the employer to accrue hours for the employee . 12.07% of every hour worked is put into a “bank” (as time). Then, when the employee takes their holiday, each hour of holiday taken (up to what is in the bank) is paid at their normal hourly rate.

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