What is a zero hour contract? And how should you use them?

What does a zero hour contract mean for employment status?

Your employees (including those on a zero hour contract) can be classed as either employees or workers depending on their contract and how they work in practice, including frequency of hours and type of work undertaken.

Workers are people contracted to do work personally for a company and sit somewhere between employees and the self-employed in terms of employment rights.

Employees work under an employment contract and have more employment rights than workers, including protection against unfair dismissal and time off for emergencies.

There’s no fixed answer to the issue of employment status of someone working on a zero hour contract.

It’s best for you to consider the terms of the contract and how your staff member works in practice, and get professional advice if you’re not sure about anything.

Zero hour contract rights

As mentioned, rights depend on employment status – employees have more rights than workers. But every worker on a zero hour contract is entitled to:

• national minimum wage and national living wage
• paid holiday
• pay for work-related travel
• pay for being on call

You can’t stop a staff member on a zero-hours contract from working for someone else and you can’t treat them unfairly if they do work for someone else. If they’re legally classed as an employee, you can’t dismiss them for this either.

People on zero hour contracts have the same rights to rest and rest breaks as other employees and you’re responsible for their health and safety. You’ll also pay them through PAYE, deducting income tax and National Insurance.

Zero hour contract advantages and disadvantages

A zero hour contract has advantages for both employers and staff.

It lets you set out a clear legal framework for ongoing employment, including performance reviews and grievance procedures. It can also help you establish a longstanding relationship with a worker, which could be beneficial over the long term.

For workers, they have rights and legal protections, so it might be more appealing than freelance or other temporary work.

The disadvantages of a zero hour contract for employers include the fact that staff don’t have to accept work that’s offered to them. You’re also unable to stop them working for someone else.

The staff member doesn’t have stability as they’re not being paid a regular income, and they can’t predict when work might come along next.

Zero hour contract holiday pay

As explained above, employees on zero hour contracts are entitled to holiday pay but working it out can be difficult for employers. This is because holiday entitlement is usually based on a five-day working week, with a set number of hours.

Zero hour contracts don’t have fixed hours, so you can’t calculate holiday entitlement on a monthly basis because the employees’ hours vary month-to-month.

To work out how much holiday your employees are entitled to, you’ll need to calculate how many hours they’ve worked. The standard 28 days’ holiday (including bank holidays and public holidays) is 12.07 per cent of the 52 week year.

Put simply, for every hour an employee works, they accrue seven minutes of holiday.

Employees are entitled to their normal hourly wage whilst on holiday but not all employees are on an hourly rate. Using this holiday entitlement calculator will help if you’re struggling to work out holiday pay for your employees on zero hours contracts.

Do you have any unanswered questions on using a zero hour contract? Let us know in the comments below.

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• What is the VAT registration threshold?
• A small business guide to bookkeeping
• How much is business insurance?