Professional Comment

A Zero Hours Time Bomb? How to Work Out Holiday Pay Under New Rules

By Gareth Matthews, employment law partner at MLP Law (

As we enter the busy Christmas season, hospitality businesses should beware of new changes to zero hours contracts and how holiday pay is worked out. Following a Supreme Court ruling earlier this year, the previously commonplace practice of adding 12.07% to wages to cover holiday pay for zero hours workers is no longer acceptable – and hospitality managers must act now to protect themselves.

Zero hours workers, or casual workers, have no set hours and businesses are under no obligation to offer them hours. This makes them an attractive solution to seasonal rush periods like Christmas or major sporting events which see pubs, bars, hotels and clubs heat up in terms of footfall.

The very nature of zero hours work means that people under these contracts end up working variable hours, but this causes difficulty with holidays as all workers in the UK are entitled to paid time off. When there is no set amount paid each week, it becomes tricky to work out a formula to ascertain holiday entitlement and so many organisations settled on enhancing the time worked by 12.07% to reflect a holiday pay allowance.

However, following a recent challenge to this protocol, the Supreme Court has now ruled this this is legally incorrect and that employers must follow a new process to establish holiday pay entitlement.

Now, employers need to work out how many hours were worked on average in the last 52 weeks where the person worked. This gives a weekly average which is then multiplied by 5.6 (5.6 weeks being the minimum holiday amount, including all bank holidays) to give a holiday allowance. In many cases, this will give a greater sum that the 12.07% method.

This change will impact all businesses using zero hours workers but particularly those who use seasonal workers, due to the ruling that the average must be taken from weeks worked, not merely the past 12 months – which would have brought their average pay rate down.

There are two solutions for businesses using zero hours workers:
Firstly, you can approach the issue by ensuring that all seasonal workers have clearly defined fixed term contracts for each season worked. This takes away the ongoing agreement to offer work, removing a year-round relationship and agreeing upfront a holiday entitlement.

The risk with this approach, however, is that workers may not return following the completion of their fixed term contract; so you must be confident that you can easily replace these workers before choosing this route.
A second option is to tackle this change proactively with zero hours workers, making sure they take annual leave throughout the year so they do not accrue huge payments.

Whatever is right for your business, it’s advisable to receive proper legal input and speak to an expert to find out what is goinG to be best for your organisation.