Zero-hours contract holiday pay

In the UK, over 1 million people are on zero-hours contracts*. A recent ruling by the UK Supreme Court entitles qualifying workers on zero-hours contracts to 5.6 weeks of paid leave each year. Alongside the workers on this type of contract, the landmark ruling also affects employers with relevant part-year workers, many umbrella companies and a good number of gig-worker platforms employing independent contractors and freelancers.

If you are a ‘part-year’ worker or responsible for engaging the services of one, the ruling has enormous ramifications. It will lead to changes in workforce arrangements and could result in claims.

Zero hours contract holiday pay

What is a ‘part-year’ worker?

The judgement in the case of Harper Trust v Brazel on 20 July 2022, (more on the specifics a little later) confirmed the existence of the ‘part-year worker’. This is a person who works varying hours during certain weeks of the year, but remains employed throughout the relevant period. These workers don’t work the full number of hours that a full time worker does. They also don’t work for the full number of weeks that a part time member of staff would. Put simply, their work is irregular. The terminology can be confusing. It’s really important to remember that a part-year worker is different to a part time worker. The latter is someone who works a set number of hours during every week of the year (holidays aside).

The definition of a zero-hours contract

Interestingly, there is no formal legal definition of a zero-hours contract. The Chartered Institute of Personnel and Development** (CIPD) defines a zero-hours contract as:

… an agreement between two parties that one may be asked to perform work for the other but there is no set minimum number of hours. The contract will provide what pay the individual will get if he or she does work and will deal with the circumstances in which work may be offered (and, possibly, turned down).

The rise of the zero-hours contract worker

The number of people on zero-hours contracts in the UK really took off in 2013. In 2020, the 1 million mark was breached for the first time. The latest data from the ONS shows 1,032,267 people are on a zero-hours contract. The ramifications of the ruling could, potentially, affect a great many people and lead to a large number of additional paid holiday days.

That being said, it is important to put these numbers into context. Zero-hours contracts only account for a small percentage of the UK labour market – around 3% of total employment.

Number of people aged 16 and over on zero-hours contracts in the UK

Jan – Mar 2020 985,415
Apr – Jun 2020 1,068,999
Jul – Sep 2020 972,461
Oct – Dec 2020 995,377
Jan – Mar 2021 883,039
Apr – Jun 2021 919,019
Jul – Sep 2021 1,000,061
Oct – Dec 2021 1,033,575
Jan – Mar 2022 1,021,769
Apr – Jun 2022 1,032,267

 

Source: ONS Labour Force Survey

The advantages & disadvantages of zero-hours contracts

Many people on zero-hours contracts can be found in the hospitality, entertainment and care industries. Pay tends to be lower and according to a recent report by the CIPD*** students and older people were most likely to have zero-hours contracts.

Zero-hours contract holiday pay

However, zero-hours contracts aren’t necessarily a bad thing. CIPD/YouGov UK Working Lives surveys, 2019 to 2021 reported that 62% of zero-hours contract employees were satisfied (or better) with their jobs. A figure only slightly lower that the 66% for other employees. For many of the respondents the freedom to turn down work was a massive plus. (Whether this would count against them being offered future work was debatable…) Lower levels of stress and a better work/life balance were other benefits cited by many on zero-hours contracts.

The case that changed zero-hours contract holiday pay

On 9 November 2021, the case of Harper Trust V Brazel was heard. The issue – whether a worker’s right to paid leave is accumulated according to the working pattern of the worker and/or is pro-rated.

The Harper Trust run a girls school and Mrs Brazel began teaching pupils to play the saxophone and clarinet in September 2002. The number of pupils needing a lesson varies, so Mrs Brazel’s hours can change from week to week. She is paid an hourly rate (in arrears at the end of each month). During the school holidays there are no pupils to teach so there is no requirement to work. Mrs Brazel has no guaranteed hours of work and no normal hours of work.

Mrs Brazel’s contract provided her with 5.6 weeks’ annual paid leave. (The statutory holiday entitlement under the Working Time Regulations.) A stipulation was that leave must be taken during school holidays or at a convenient time for the school. Mrs Brazel’s holiday entitlement was based on 1.87 weeks being taken in the spring, summer and winter school holidays. (If you’re reaching for a calculator, 1.87 x 3 = 5.6.)

Zero-hours contract holiday pay calculator

The Calendar Week Method

Before September 2011, Mrs Brazel’s holiday entitlement was determined in accordance with section 224 of the Employment Rights Act 1996. The definition of a week’s pay was determined as the amount of Mrs Brazel’s average weekly remuneration in the period of 12 weeks ending with the start of her leave. Any weeks in which she earned no money were ignored. The Harper Trust worked out how much Mrs Brazel had been paid during the 12 term-time weeks prior to the school holiday, divided the total by 12 and paid her 1.87 times that weekly average. This was referred to in the case as the “Calendar Week Method”.

The Percentage Method

From September 2011 the calculation was changed. Harper Trust began calculating Mrs Brazel’s hours worked at the end of each term, took 12.07% of that figure and subsequently paid her the hourly rate for that number of hours.

Now, you may be wondering why 12.07%? This calculation (often referred to as the ‘Percentage Method’) is widely used in flexible working situations. It is derived as follows.

52 weeks minus 5.6 weeks = 46.4 weeks. 5.6 weeks is 12.07% of 46.4 weeks.

This led to Mrs Brazel being entitled to 12.07% of her total pay for the term.

The change to zero-hours contract holiday pay

The crux of the matter was whether Mrs Brazel – who worked only some weeks of the year – was entitled to a full 5.6 weeks of paid leave or should it be pro-rated to reflect the time that she actually worked at the school?

The Supreme Court ruled that under the Working Time Regulations (WTR), Mrs Brazel WAS indeed entitled to 5.6 weeks of paid holiday each year even though this would result in her receiving proportionately more paid holiday than a member of staff who worked full time. The judges ruled that the Calendar Week Method represents the correct interpretation of the WTR and is fully compliant with EU law.

The employer contended that the Calendar Week Method leads “to an absurd result”. In response, the Supreme Court recognised that, while “general rules sometimes provide anomalies when applied in untypical cases”, equally “it would be unusual for a worker whose services are only required for a few weeks a year to be engaged on a permanent contract, unless there was some other good reason to do so”.

If you are one of the many employers which continue to use the Percentage Method (or 12.07%) to calculate pay for those working irregular hours, you would be wise to revisit contractual arrangements and holiday pay for part-year workers. Some employers may, albeit unwittingly have made unlawful deductions to part-year workers pay. Equally, if you are a part-year worker on a zero-hours contract you should check to see how your holiday pay is calculated.

Next steps for employers offering zero-hours contracts

All part-year zero-hours contracts should be carefully reviewed. It’s worth remembering that not all paid holiday arrangements that use the 12.07% calculation are liable to claims following the ruling. Only those workers engaged on a permanent of overarching contract are affected. That being said, there will be a number of part-year workers and those in the gig economy who are entitled to recompense.

If you require further assistance and need expert advice on employment contracts, please get in touch.

New laws came into effect on 1 January 2024 which have implications for holiday pay for UK employees who experience variations in pay due to factors such as commission or overtime. Read more

 

*Source ONS Labour Force Survey

** The CIPD is a professional body for HR and people development. The charity champions better work and working lives. It has 160,000 members worldwide

*** CIPD. (2022) Zero-hours contracts: evolution and current status. London: Chartered Institute of Personnel and Development

More information and advice on How to retain staff, How to deal with difficult staff and Dealing with absenteeism.