Calculating casual (zero-hours) contracts holiday pay entitlement

Calculating holiday entitlement for casual (zero-hours) employees can be a complex task. Our team of experts provide comprehensive guidance on all the factors to consider.

Moorepays HR & Employment Law Advice Line receives several queries each week regarding these matters. Common queries include:

• Are casual workers entitled to holidays?
• What’s the difference between a variable-hour employee and a casual worker?
• What is the correct calculation for paid annual leave for a part-time worker?
• Are bank holidays automatically included in a year’s leave entitlement?
• When should the holiday year start for a new starter?

If you have any queries regarding casual (or zero-hour) workers, you’ve come to the right place.

What is a zero-hours worker?

A zero-hours worker used to be the term for an employee working differing hours per week. However, in 2020, the Government issued new a definition for zero-hours workers. Their new definition is that of a casual worker.

A casual or zero-hour worker means that:

• There is no mutuality of obligation between the employer and casual worker
• The person only works on an ad hoc basis, and is not permanently on the payroll
• You as an employer do not need to give them work
• Likewise, the worker can either accept or refuse any offered work

Typically, a zero-hour or casual worker is only employed for a brief duration by the employer. They may serve as a bartender for a restaurant during a busy season for three months, cover shifts at a takeaway while the delivery driver is absent, or provide interpretation services for a project for an unknown period. Each temporary job is viewed as a distinct employment opportunity.

While employers are not required to offer any guaranteed work hours, the employee is not obliged to accept any work offered to them. They can also work for other employers, making this casual contract mutually beneficial for both employers and employees.

Note: A self-employed individual does not fall under this category. While they can accept a zero-hours arrangement, they remain self-employed.

Zero-hours or variable-hours?

Prior to 2020, what was once labelled as a zero-hour contract is now recognised as a variable-hours contract. The individuals working under variable hours typically hold permanent employment with varying weekly work schedules, establishing a mutual obligation between the employer and employee.

It is crucial to avoid confusing these two categories of employees since they receive different calculations for their holiday allowances and compensation. Please read this article to learn more about variable workers.

Are casual workers entitled to paid annual leave?

Individuals working on casual contracts possess identical legal safeguards as conventional ‘full-time’ or ‘part-time’ staff. A common inquiry we receive is whether casual workers are eligible for paid annual leave. The straightforward response is “yes”.

Just like full-time employees, casual workers also earn holiday entitlement. However, confusion arises when a casual worker works for a couple of weeks in January and then has no further work until April. Despite this situation, they still have the right to accrue full holiday entitlement based on their completed work during their period of employment.

Although the principle is straightforward, determining the entitlement can sometimes be challenging due to complex calculations.

What information do I need to calculate holiday entitlement for casual workers?

To calculate a casual or zero-hour worker’s holiday entitlement, you’ll need these three things:

• Their employment start date
• Their employment end date
• Their annual holiday entitlement, if they were to work full time

To calculate the number of days a worker has worked, simply refer to their employment start and end dates. It’s important to note that this only reflects the length of their contract and not the actual number of days or weeks worked. If the worker has not worked a full holiday year based on your business’s dates, their employment start date should be used as the beginning of their leave year.

The amount of annual vacation time an employee receives is based on the number of days they would take off if they worked full-time, including any bank holidays. Any part-time hours should be adjusted to their equivalent in full-time hours.

Employers typically provide casual workers with the legal minimum of 28 days of paid leave (including bank holidays taken as annual leave), but they may offer more, in accordance with the benefits given to full-time employees. This information should be detailed in the worker’s contract.

To convert days into weeks, all you need to do is divide the number of days by 5.

How do you calculate a zero-hour worker’s holiday entitlement?

The whole calculation for calculating a zero-hour worker’s holiday entitlement – as described on the government website – is*:

Full-time annual leave entitlement in days / (No. of days in employment / number of days in a year) = weeks of holiday entitlement.

Kindly take note that the number of days utilized in the calculation of a year may either be 365 or 366, depending on whether or not it is a leap year.

As an employer, it is your responsibility to convert the leave entitlement into days or hours as required. However, there is no specific legislation on the method to be used for this conversion. Hence, HR experts should exercise their discretion and choose the fairest approach when making this calculation. Please keep in mind that pro-rating the holiday entitlement may be necessary if the worker has worked less than five days a week during their employment with you.

*Please seek specialist advice for further information if you’re unsure.

Why is it often more practical to calculate a casual contract worker’s annual leave by hours worked?

As per the law, every employee and worker is guaranteed a minimum of 5.6 weeks of paid annual leave, which includes bank holidays. This translates to 28 days for those who work from Monday to Friday. Nonetheless, an employer can opt to provide a higher entitlement through contractual agreements. For instance, they can offer an additional week of leave, making a total of 6.6 weeks (equivalent to 33 days) per year, along with paid bank holidays.

Casual contract workers are entitled to accrue annual leave from their first day of employment, similar to full-time employees. However, for practicality, it is often better to calculate their entitlement based on the number of hours worked, even though the entitlement technically accrues in the same manner.

How do I calculate the holiday payment for a casual worker?

Casual work is often ad hoc, making it unlikely for workers to take any holidays during their short-term assignments. Therefore, their holiday pay is typically paid out at the end of their assignment.

Next steps

You can read up on how to calculate holiday entitlement for part-time workers here.

We hope this explanation has provided clarity on this complex and often misinterpreted topic. We advise that Natural HR customers who would like specific advice on casual contracts should get in touch with sales, or your account manager to learn more about the MP HR Advice Line service. Alternatively, you can contact the Moorepay Advice Line directly on 0345 073 0240.

Disclaimer

Kindly be advised that this calculator is created based on the latest guidelines from gov.uk, as of June 2023, to assist employers. It is presented as a general illustration and should not be considered a replacement for legal counsel on any particular situation. Employers are recommended to obtain their own legal advice. Please note that Natural HR cannot be held accountable for its usage, and employers are solely responsible for any risks involved.