Annual Leave and Zero Hours Contracts – Employers Guide to the Annual Leave Calculation Changes

Last Updated on 10 April 2024 by Rebecca Young

April 2024 will see several changes to employment legislation across the UK, including changes to flexible working, paternity leave, and the introduction of carer leave. This April will also see the introduction of Working Time Regulations changes, specifically the calculation of holidays for those working under irregular contracts and part-year workers, plus the introduction of the option to use rolled-up holiday pay.

In this article, we explore both changes in more detail.

What is meant by ‘irregular working hours’ and ‘part-year’ workers?

Understanding the difference…

First of all, it’s important that we understand who these annual leave calculation changes apply to.

Those working under contracts with set hours or shift patterns will continue to receive an entitlement based on the UK minimum of 5.6 weeks’ holiday annually (28 days). This figure may be higher if your organisation offers an enhanced annual leave entitlement, and those employees who work contractual hours but on a part-time basis will continue to receive a pro-rata amount of annual leave. No change there.

Irregular hours workers:

When we talk about those with irregular working hours, we are talking about what we call ‘atypical’ contract types, such as contracts where there is no guarantee that work will be offered or where there are no set contractual hours of work, e.g., those working under zero-hours contracts, ad-hoc, or a casual employment contract, and so on. To be classified as an irregular-hours worker, the contract would state that in each pay period (i.e., weekly or monthly paid), the number of paid hours of work is variable or non-guaranteed.

Part-year Workers:

For the purposes of the upcoming holiday pay calculation changes, part-year workers are those whose contracts state that they are only required to work part of an annual leave year. There are periods during that year (of at least one week) when they are not required to work and for which they are not entitled to be paid.

This will include types of seasonal workers and some term-time only contracts.

How is the annual leave calculation done for these types of contracts?

For annual leave years beginning on or after April 1, 2024, an accrual method will be used to calculate holiday entitlement. This accrual method is based on a percentage (12.07%) of the actual hours worked in a pay period.

Holiday leave years beginning in January will not see these changes take effect until January 2025.

Where does the 12.07% come from?

All workers in the UK are entitled to a minimum of 5.6 weeks’ holiday leave(28 days). When working out how much holiday an irregular or part-year worker has accrued, it is important to base this accrual on the statutory minimum to be legally compliant.

In a calendar year of 52 weeks, there are a total of 46.4 working weeks (52 minus 5.6); therefore, 5.6 weeks of leave is 12.07% of 46.4 working weeks.

Please note that if your contracts of employment provide for more than 5.6 weeks holiday annually, the percentage you use to calculate holiday accrual for irregular or part-year workers may need to be adjusted.

I have employees on zero-hours contracts; how is their annual leave entitlement calculated using the 12.07% method?

Let’s take an example:

Bob is working under a zero-hours/ casual employment contract and is paid monthly. The contract states there is no guarantee of work; his hours vary from month to month, and there are some weeks where he is not required to work at all.

The employer offers an annual entitlement of 5.6 weeks’ holiday.

In May, Bob works 85 hours. To work out how much holiday Bob has accrued in May, we calculate 12.07% of the hours he has worked.

• 85 ÷ 100 = 0.85
• 0.85 x 12.07 = 10.2595

Round up or down to the nearest hour: 10 hours of annual leave accrued in the month of May.

How is holiday pay calculated for those working irregular working hours?

There are now two options here:

1. 52-week reference period

The annual leave calculation is done using the average pay from the previous 52 weeks where work has been carried out and pay received. This excludes weeks where sick pay or other types of leave have been taken, such as maternity leave.

An employer may need to go back more than 52 weeks to obtain 52 weeks’ worth of paid weeks, but they needn’t go back further than 2 years (104 weeks). Employers will go back to the contract start date for workers who have recently joined the company and who have not yet carried out 52 weeks of paid work.

To find out the average weekly pay for an irregular-hours worker who wishes to book annual leave, the employer adds up all the pay received for each of the 52 weeks and then divides the total by 52 to get the average pay. This is the pay the worker will receive for a week of annual leave.

For example, if the total pay across the 52-week reference period was £15,000, a week of holiday pay would be £15000 ÷ 52 = £288.46.

This annual leave calculation would need to be done each time the individual requested holiday leave.

2. Rolled-up holiday pay (RUHP) is only for leave years commencing on or after April 1, 2024.

Rolled-up holiday pay allows employers to include an amount of pay with each payslip to cover an individual’s holiday pay rather than paying them for their holiday when they take it.

To work out the amount of RUHP in a particular pay period, the employer calculates 12.07% of the total pay the individual has received in that pay period.

For example, Sam is paid £11 per hour and is paid weekly. From May 1 to May 7, she works 42 hours. In Sam’s pay that week, her holiday pay for that week will need to be added to her payslip.

We work out her total pay for the week: 42 x £11 = £462.

We work out 12.07% of the total pay: £462 ÷ 100 = £ 4.62 x 12.07 = £55.76.

Sam receives an additional £55.76 in rolled-up holiday pay on her payslip for that week.

Can I now revert to using RUHP or the 12.07% method for annual leave accrual if I haven’t used it before?

This will amount to a contractual change, so it is not something that employers should unilaterally impose; otherwise, you run the risk of a claim.

Advice must be sought from Avensure before making any changes to how holiday pay is calculated or paid. When contacting us for advice, please have the relevant contract you wish to discuss on hand.

Need Support with These Holiday Pay Calculation Changes?

As always, this article is a guide and not a substitute for taking advice. The law stated is correct on the above date; this article was first posted on our website. Please contact Avensure for specific advice for your business.