Zero hour contracts

[Rich Leigh]

Hi all!

I'm currently taking somebody on, on a zero hour contract, (which suits both parties given their current part-time employment elsewhere and my being a start up with no definite work as yet).

Just a quick question, does anybody know how to work out holiday entitlement and sick pay entitlement for an 'as and when' employee? I know they are of course legally entitled to holiday pay and sick pay etc for hours worked, but my accountant's away on holiday and it's a question that can't really wait!

I assume it's on a pro rata basis as opposed to a fixed rate, but am unsure how to calculate either - it's the last detail in the contract that needs to be shored up! If anybody knows of any good onlilne resources, I'd really appreciate being shown in the right direction, or any advice, really!

Much appreciated

 

[Employment Law Clinic]

I don't particularly recommend Zero Hours contracts, and am intending to have more advice on it soon. But if suits both of you, I think you want to try the following calculations, and put that into the contract.


From BusinessLink:

Casual workers
If a member of staff works on a casual basis or very irregular hours, it is often easiest to calculate holiday entitlement that accrues as hours are worked.

The holiday entitlement of 5.6 weeks is equivalent to 12.07 per cent of hours worked over a year.

The 12.07 per cent figure is 5.6 weeks' holiday, divided by 46.4 weeks (being 52 weeks - 5.6 weeks). The 5.6 weeks are excluded from the calculation as the worker would not be at work during those 5.6 weeks in order to accrue annual leave.

So if someone works 10 hours, they are entitled to 72.6 minutes paid holiday (12.07/100 x 10= 1.21 hours = 72.63 minutes).​

Karl Limpert

 

[Rich Leigh]

This is great Karl, thanks so much for that, it took a few glances to make sense of it given my shoddy maths and all! It's slightly confused for my business considering my employees could train three clients one day, 6 the next etc, but I'd ensure I then went on hourly holiday entitlement as opposed to daily...

Whoa, sorry for making you nod off there! I really appreciate this though.

If anybody knows anything about sick pay with relation to the business' circumstances, that'd be ace. Cheers!

 

[Employment Law Clinic]

You're welcome Rich,

Hourly entitlements would seem appropriate in this case, as opposed to daily ones - assuming you're paying by the hour too.

Sadly for you, sick leave calculations are a lot more awkward - there is no definitive way of calculating this. If someone was due to & assigned work for say 4 days next week, and then called in sick on the first day, off for the 4 days, I think it's fair to say on the fourth day they would be entitled to SSP (as a qualifying day). But if you contact this person, and they suggest they are sick before any work has been assigned, a more tricky issue (zero hours contracts might solve some things, but they also bring their own baggage too).

There is again some information on the Business Link website, and HMRC also has advice:

Qualifying Days (QDs)
The only days you can:

• pay SSP for, and
• count as Waiting Days (WDs)

They are usually the days of the week your employee normally works; their contracted working days.

You can decide not to use the contracted working days if, for example, your workforce operates a varied or alternative working pattern each week. For simplicity you may want to have the same days each week as the QDs, but you must first reach agreement with your workforce or their representative(s) about which days will be QDs. You cannot use different QD's than the actual work pattern without agreement with your employees.

There must be at least one QD in each week running from Sunday to Saturday. Bank Holidays and other non-working days do not alter the normal pattern of QDs.​

You will need to specify at least one day a week that would be a working day that will attract SSP if the employee is sick.

Overall, not straightforward, and the actual working patterns will influence matters, so if you want specific help with drafting the contract, please let me know.


Karl Limpert

 

[Wild Goose]

Top posts, Karl

Holiday Pay
Another way - in fact most of our zero hours employers find this easier - is to calculate and pay the holiday pay as it is accrued by grossing up the wages by 12.07% (rather than gross up the hours worked). So if someone earned £7 hour, their pay is grossed up by 12.07% to £7.85 per hr. It's processed as £7 basic pay, and 85p holiday pay. So effectively, employees are paid their holiday pay at the end of the week or month in which they accrue it.

Sick Pay
We haven't had too many problems with sick pay - many zero hours employees work naturally irregular hours where the pattern is intermittent: work your socks off for a few days or weeks; then put your feet up a day or sometimes a week or two. It seems that if anyone is sick the rota is altered so that they are simply not required for a while. I know that might sit uncomfortably with employment legislation, but until zero-hour contracts are tested in the courts then like it or not that's what happens in practice.

 

[Employment Law Clinic]

It's processed as £7 basic pay, and 85p holiday pay. So effectively, employees are paid their holiday pay at the end of the week or month in which they accrue it.

That's rolled up holiday pay, isn't it? Is it illegal, or just has to be clear on how it's paid; must refresh my mind!

Sick Pay
I know that might sit uncomfortably with employment legislation, but until zero-hour contracts are tested in the courts then like it or not that's what happens in practice.

I too know that might sit uncomfortably with employment legislation Wild Goose! As SSP isn't the employers money - they just administer this on behalf of the government - an employee could complain to HMRC I think it is, certainly without going to court. Not sure what the penalties are for employers in these cases, guess seen as you're just not running the PAYE & associated matters properly.


Still need to do lots of research on these zero hours (clearly getting popular) but lots more to do too.

Karl Limpert

 

[Wild Goose]

That's rolled up holiday pay, isn't it? Is it illegal, or just has to be clear on how it's paid; must refresh my mind!

If you don't pay them hols as you go then you may not want or see them for months - especially so with consultants whose work can be stop / go - in which circumstance I daresay you would be offside for not paying them hols pay soon enough / in the right fiscal year etc

But you're quite right Karl, technically rolled up holiday pay is illegal. In practice, few employers take any notice of the ruling

http://www.mondaq.com/article.asp?articleid=56304

"Rolled-up holiday pay may be seen as a type of pay in lieu, but technically it is not. Under a rolled-up holiday pay scheme, workers are paid an enhanced hourly rate which incorporates their entitlement to holiday pay, but they do not lose their right to take leave. They accrue holiday in the normal way and are entitled to take it in accordance with the WTR. However, since their normal hourly rate has already compensated them for their entitlement to holiday pay, they are not paid for the leave at the time the leave is taken."

The article goes on to explain that in 2004 (or after):

"The European Court unequivocally ruled that rolled-up holiday pay was unlawful. However, in the same judgment it stated that sums already paid to workers under a rolled-up holiday pay scheme could be set off against the holiday pay owed to the worker, as long as the scheme was sufficiently transparent.
With this caveat, the European Court has mitigated the effect of its own ruling. If an employer runs a rolled-up holiday pay scheme which is sufficiently transparent, there is little incentive, financial or otherwise, to alter this practice. Even if a ruling was given against an employer, if the scheme is sufficiently transparent the compensation awarded to the worker is likely to be insignificant. This is why many employers are currently continuing with such schemes.
No expiry date was provided for the set-off provision. Therefore there is currently no hurry for employers to change their practices and replace rolled-up holiday pay schemes, as long as the schemes are transparent"

Still need to do lots of research on these zero hours (clearly getting popular) but lots more to do too.

Karl Limpert

I talked to a prospective client just today who impressed me because completely off the firm's own own bat - the outgoing accountant wasn't proactive enough - they've switched nearly a hundred employees onto zero hours contracts. They switched many of them from regular employment contracts - I guess that raises all sorts of undue influence type issues (is undue influence correct terminology for a master/servant relationship? Or coercion? I'm out of my comfort zone on the difference between the two, but I'm sure if you were going to research the matter that would be a major area - the legalities of asking an employee to accept a zero hours contract in place of a regualr employment contract).

 

[Rich Leigh]

Hi Karl, thanks so much again! I may actually take you up with a bit more help regarding the contract, that's a really kind offer.

And WG, I'm loving the sick pay idea , although for my business, clients will be trained by a specific trainer instead of the work being able to be shifted - I will be able to provide short-term cover on occasions sickness/absence can't be helped myself or by bringing in another trainer, but on the whole, it's all about keeping everybody sweet! My initial contract, which had my accountant shouting code red at the top of his Brummie lungs simply said 'there is no sick pay', so anything better than that is a bonus!

 

[Employment Law Clinic]

I've seen the same article Wild Goose. Quickly checked a few EAT rulings too, and clearly a confused area of law - ergo, something often better to err on the side of safe for!

BERR appear to have had a page on their website last year stating “Rolled-Up Holiday Pay (RHP) is considered unlawful”, but the EAT judgements (of which there are a few) acknowledge the European Court of Justice’s opinion it was unlawful, but could yet be done - a most peculiar judgement from the ECJ.

Where not silent on the issue (which a lot of books are), my employment law library suggests it is illegal, and refers selectively to the ECJ; not ideal, but I guess the respected authors consider it best to define it as illegal, and not take risks.

For these reasons, where there is a real risk that an ET could make an odd decision & conclude employers shouldn’t still be doing this, I would advise making the payments at the time the leave is taken. But in the alternative, certainly make it absolutely clear that the payment is for holidays to be taken in the future, and include it as a detailed separate payment (this is what the case of Lyddon v Englefield Brickwork Ltd suggest is necessary - including a clear & specific agreement to this in the contract); if this can be avoided, seems better not to take risks though.

The other issue is actually ensuring that employees take the holidays: as an employer, it's not good enough to pay these, and allow the employee to then work them. H&S law, so employers need to make sure the necessary rest is enjoyed by all but the employer!

All hastily-drafted comments for now, but clearly when I do get the time, this zero hours matter will be covering a lot!

Karl Limpert

 

[Lou Lawler]

This is my first post, hope I am supposed to tag on to a previous one!

I'm about to purchase an existing business, the staff members are all on zero hours contract. How does this work if I didn't want/need all of the people currently there?

I've had a look on the BRR and TUPE website but can't seem to find the answer.

Thanks very much

 

[Employment Law Clinic]

This is my first post, hope I am supposed to tag on to a previous one!

I'm about to purchase an existing business, the staff members are all on zero hours contract. How does this work if I didn't want/need all of the people currently there?

I've had a look on the BRR and TUPE website but can't seem to find the answer.

Thanks very much

Hi Lou,

Regarding the zero hours, the first issue to determine is whether the staff are genuinely on zero hour contracts, or the practice of the current employment has established a minimum working week, regardless of what the documents say: if the staff have at least some work every week, this will possibly be deemed the minimum contracted hours.

Under TUPE you can get rid of the excess staff, but the process has to be carefully followed to ensure you don't fall foul of TUPE laws. At the date of transfer, you assume all liabilities for the staff, and their employment is treated as continuous - with all the employment rights they have accrued.

You cannot dismiss staff for a reason relating to the transfer unless it is for an economical, technical, or organisational (an ETO) reason: you can fairly dismiss (by way of redundancy) staff that are no longer required. You would need to get professional advice on this, as the law is complicated, and not something that can be summarised in a forum post. What you'll need to remember though is that previous length of service will be counted for redundancy, so certainly consider this in your financial planning for the business.



Karl Limpert

 

[Micky C]

I have been currently taken on a zero hours contract, on the promise of a full time contract after an initial probation period, this has since come to pass but my employer has denied me a new contract, (he always says we'll see or that its not up to him blah blah) My employer has started taking on more and more zero hour staff on which is eating into my available work. and now the place is over staffed to the eye balls. I was wondering what laws there are to protect me, ie does my employer have to give me a new contract by law after lets say 12 months? or anything else that might help? I believe there behaver on this to be morally wrong as i have a wife and child at home waiting for me to bring home the bread, Thanks for your time
Michael (uk)