Zero-hours contract workers, their rights and holiday pay

6 minute read
25 September 2018

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The treatment of zero-hours workers, often considered to be vulnerable and at risk of exploitation because of poor working conditions and practices, has been the subject of intense media and, in turn, consumer interest. So how can retailers ensure that they do not become the focus of that scrutiny?

There is a common misunderstanding that zero-hours contract workers have no statutory rights. This is simply not true.

Zero-hour workers will typically have 'worker' status under employment legislation which entitles them to rights such as the National Minimum Wage (NMW), holiday pay and statutory rest breaks. In addition some zero-hours contract workers may in fact be employees with an even greater number of rights.

Surely zero-hours workers are not entitled to holiday leave and pay as they have no guaranteed hours?

But they do and this is a commonly held misunderstanding.

How much holiday leave are zero-hours workers entitled to?

Under the Working Time Regulations 1998 (WTR), every worker is entitled to 5.6 weeks' annual leave. A week's leave should allow workers to be away from work for a week. How this applies to a worker with no normal working hours can be difficult to work out in practice.

It is often easier to calculate the holiday entitlement of a zero hours employee on the basis of the number of hours (or days) worked. However, any such rule based on irregular working hours can only be a rule of thumb, and will need to be adjusted to accommodate any fluctuations in working hours (see below).

How much holiday pay are zero-hours workers entitled to?

A worker is entitled to be paid during statutory annual leave at a rate of a week's pay for each week of leave, calculated in accordance with the complicated 'week's pay' rules contained in the Employment Rights Act 1996 (ERA). Back in 2004, the Court of Appeal in Bamsey v Albon Engineering and Manufacturing plc held that the exclusion of voluntary overtime from the calculation of a week's pay for the purposes of calculating both contractual and WTR holiday pay was lawful.

While Bamsey did not concern zero-hours workers, under this analysis a zero hours employee could arguably be paid nothing as all of their hours are non-guaranteed. But don't be fooled. In recent years we have seen a plethora of high profile overtime and holiday pay calculation cases including, Williams v British Airways plc, Bear Scotland v Fulton, Dudley Metropolitan Council v Willetts and most recently Flowers v East of England Ambulance Trust, which make it clear that such an argument based on Bamsey would fail. Working hours which are not guaranteed and/or voluntary must be included when calculating holiday pay.

So how do you actually work out the holiday entitlement and pay for zero-hours employees?

Calculation under the WTR

If a worker does not have normal working hours (which is generally the case for a zero-hours workers), holiday pay is calculated based on average weekly remuneration in the twelve weeks before the date of the holiday or if the worker did not work in that twelve week period, the last twelve week period when they earned remuneration. While this sounds simple actually carrying out this calculation for a business utilising large numbers of zero-hours contract workers can often prove to be an administrative headache.

Is there a shortcut - the 12.07% formula?

In light of the difficulty in calculating the amount of holiday pay due it has become common for employers to treat the zero-hours workers as accruing holiday entitlement at the rate of 12.07% of the hours worked. This accrual rate derives from the fact that the standard working year is 46.4 weeks (52 weeks less the statutory 5.6 weeks holiday entitlement) and 5.6 weeks is 12.07% of 46.4 weeks. The 12.07% method is also recommended in the 'Your questions answered' section of the Holidays and Holiday Pay ACAS Guidance.

Is that a fool proof approach?

The 12.07% method is accurate in many cases, but it will not necessarily comply with the Working Time Regulations in all cases. Earlier this year, the Employment Appeal Tribunal (EAT) in Brazel v Harpur Trust, held that calculating holiday pay for a variable hour, term-time only worker based on the 12.07% method was incorrect. A zero-hours worker is entitled to holiday pay calculated under the Working Time Regulations and Employment Rights Act, which is based on average earnings over a 12-week period, reflecting the number of hours that worked.

The EAT made it clear that the express provisions for calculating holiday pay for workers with variable hours contained in the Working Time Regulations cannot be overridden by capping annual holiday pay to 12.07% of annualised hours for ease of calculation. Moreover the Acas guidance is simply Acas' view. It is what the legislation actually says that is paramount.

Employers using the 12.07% of annualised hours calculation as a shortcut should review their holiday pay calculation practices to avoid facing potential claims. This is more likely to be an issue for zero-hours employees working on a term-time or other seasonal basis.

There is also more to come as on 3 August the Court Appeal granted permission to appeal in Brazel v Harpur Trust. The case is expected to be heard by the Court of Appeal some time next summer with judgment expected in late 2019.

So, no business should assume that zero hours workers are a cheaper source of labour or that they have no rights, and businesses using zero-hours workers should check that those workers are being paid correctly whether those payments relate to the national minimum wage or holiday pay.

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