Zero Hours Contracts and Holiday Pay

[Pauline Ferguson]

Hi there, I am looking for a bit of advice. My boss has asked me to draw up an employment contract/agreement for a casual (zero hours) worker. In previous jobs that I have worked in they have always 'rolled up' holiday pay into the workers hourly rate (i.e. paid £10.00 per hour and added 12.07% noting hourly rate of £10.00 on pay slip and £1.20 as holiday pay), I don't think that 'rolling up' holiday pay for a zero hours contract is correct, any advice on this and guidance as to how this should be worded in the contract/agreement would be very much appreciated.

 

[Newchodge]

Rolling up holiday pay into an hourly rate is always illegal.

In order to calculate the weekly pay when the employee takes holiday you need to work out their weekly, or daily pay rate over the 12 weeks prior to taking holiday.

 

[Pauline Ferguson]

Thank you, very much appreciated so in order to calculate average hourly rate, only the hours worked and how much was paid for them should be counted? If we take the average rate over the last 12 weeks and no pay was paid in some of those weeks would I have to count back one further week taking it to 13 weeks or longer than that ,until we reached a 12 week pay period?

 

[Pauline Ferguson]

Any tips on how I would word this in a contract in plain and simple terms?

 

[Newchodge]

You would need to count the previous 12 weeks in which the employee worked.

The contract should say something like

you are entitled to 5.6 weeks paid leave each year (needs stuff on holiday year and so on ) Your holiday pay rate will be calculated in accordance with your average earnings over the previous 12 weks that you have worked. If you have not worked for 12 weeks at the time you take holiday it will be calculated on the average for the weeks you have worked.

 

[ethical PR]

@Pauline Ferguson look at the ACAS and .gov.uk they have sample contracts you can adapt for the contract.

However I would suggest your boss should invest in some expert help from an HR person or employment lawyer ( @Newchodge is one of them ) to ensure that you have the right contracts, health and safety policies etc in place.

 

[Pauline Ferguson]

Thank you for all of your help, very much appreciated!!!

 

[White Collar Legal]

Hi Pauline

The 'rolling up' procedure is the correct method provided that you are paying the minimum of 7mins/per hour. The payslip must however identify separately what is basic pay and what is holiday pay.

I have a contract that I use with our staff if you require a copy (but it is based on hourly rate and nothing else).

I'm not an employment lawyer by the way but I can assist with the basics

 

[Newchodge]

Hi Pauline

The 'rolling up' procedure is the correct method provided that you are paying the minimum of 7mins/per hour. The payslip must however identify separately what is basic pay and what is holiday pay.

I have a contract that I use with our staff if you require a copy (but it is based on hourly rate and nothing else).

I'm not an employment lawyer by the way but I can assist with the basics

I am an employment lawyer, and rolling up holiday pay is against the rules.

 

[Employment Law Clinic]

Not for the first or last time, I both agree & disagree with Cyndy.


The starting point is that there is an ECJ judgment that says rolled-up holiday pay is not allowed. Member states were required to take measures to ensure such practices were not continued. (To date (10 years after the judgment), the UK government has not made any relevant amendments to the law; I think there might have been consultations, but no changes to the law.)


But there are two issues that need to be considered when acknowledging that rolled-up holiday pay is not permissible:


1. The ECJ judgment effectively said employers shouldn’t use rolled-up holiday pay, but could if they make it clear they are on a payslip.

(Given the wider judgment, this is not recommended for most contracts – I’d certainly agree with Cyndy in this regard.)


2. (Genuine) Zero-hour contracts are stand-alone contracts: they can be extremely short in their nature, and therefore the contract would end within a week or so – or whenever the terms of the hours offered, accepted, & worked are completed. If a new period of work is offered & accepted, a new contract term is entered.

(Most “zero-hours” contracts are not that at all, they simply have fluctuating weekly hours; I believe I heard a politician today mention this was an average of 20 hours (no idea where the stats to support this are from). But the employment relationship in these instances, whether as worker or employee, has a continuation, there is no break in the contractual relationship – and genuinely, these are (certainly arguably) not “zero-hours” contracts.


If an employer offers to a casual worker they know & have worked with before some hours, and those hours (or even some of them) are accepted, that’s a zero-hours contract, and when the agreed hours are done, the contract is terminated. Holiday pay is still due, so no other option but to roll this up – it has to be paid on termination of the contract.)



For the reasons above, I would suggest the OP get professional advice on drafting the terms. And White Collar Legal does too, if they are using these terms for “staff” rather than genuinely casual workers – someone you might call upon from time-to-time, on zero-hours terms.



Karl Limpert

 

[Newchodge]

Not for the first or last time, I both agree & disagree with Karl. I like that phrase.

Actually, I like it so much I have used it wrongly. Karl, you are, of course, right. In your paragraph 2 you are talking about paying holiday pay on termination and calculating it by rolling it up. I have no problem with that.

The issue I have is where holiday pay is included in the ongoing hourly rate so on-going employees are paid for their holidays but have no right to time off. Which is wrong.

I am surprised that the OP stated that she was used to rolling up holiday pay for most staff, but thought it was wrong for zero hours. That seems to be the reverse of what is right.

Perhaps people are confused by the phrase 'rolling up'. If an employer calculates the employee's pay, and then applies 12.07% to that pay and identifies it as holiday pay, which the employee can take as time off, there is no problem. It is when the employee on a continuing employment contract gets paid extra but has no right to time off that things get complicated.

 

[Employment Law Clinic]

I think it was Damien Green (is that the Work & Pensions Secretary?) on Daily Politics that mentioned the average weekly 20 hours for a zero-hours contract - which means it wouldn't be a zero-hours contract at all!

I find it odd, but only last week the government argued against new legislation to allow interns to be paid the minimum wage (the government’s argument being that current legislation covers this, where people actually work), but when it comes to zero-hours contracts, they ignore the legal fact that most of them they rely upon in their stats are nothing of the sort, only given that label for the convenience of the employer, or ignorance of the worker- the laws the government seeks to rely on to argue against a minimum wage for interns is the same legislation that says most of these contracts are not “zero-hours” at all. Typical selective (ab)use of stats.


For me, the real confusion arises by the misuse of the term “zero-hours” contracts for what is a regular contract with fluctuating hours. For long-term contracts (including any contract with no fixed termination), it’s never going to be a zero-hours contract. Get that parlance corrected, and then the correct formula is as mentioned above by Cyndy – the previous 12 paid weeks (although some lawyers wonder if even that complies with the Working Time Directive).



Karl Limpert