Workers with variable hours

In this article, we look at how to figure out holiday calculations for flexible or 'zero-hours' workers with irregular hours.

**Note:** The Working Time Regulations were amended in January 2024 via The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023. This article has been updated with those amendments in mind.

The history of holiday entitlement and holiday pay is long and complicated in the United Kingdom. This is due to a combination of EU regulations, UK-specific regulations and case law all influencing how these are defined and calculated.

The government made changes to the Working Time Regulations in January 2024 to 'simplify' holiday entitlement and holiday pay calculations.

Frankly, we don't think they simplified matters that much. There are still a number of different calculations you need to make, which differ depending upon the circumstances.

Also, the January 2024 changes only apply to leave years beginning on or after 1 April 2024. If your holiday year runs January to December (as most do), that means these changes would only apply from the holiday year beginning January 2025 onwards.

Anyway, grab a coffee and let's dig in...

Under the Working Time Regulations 1998, the statutory holiday entitlement for workers is 5.6 weeks. This is comprised of 4 weeks of 'ordinary annual leave' which reflects the original EU Working Time Directive, plus a further 1.6 weeks of 'additional annual leave' to cover the 8 days of public holiday in the UK.

Over the years, a number of different legal cases have argued that holiday pay should not just be based on your basic pay, but should also reflect what you actually earn in practice. For example, overtime, bonuses and commission. Some professions, such as air crew, get additional allowances while they are working for flying or being out of the country. Workers argued that it was unfair that holiday pay did not reflect these 'regular' additional payments.

As a result of these prior cases, the 4 weeks component should be paid at the 'normal' rate of pay, which factors in regular payments such as overtime, bonuses and commission. The 1.6 weeks of 'additional leave' get paid at the 'basic' rate of pay, i.e. their base salary without any overtime, bonuses or commission, etc.

You can see why we said the history was long and complicated!

But wait, there's more. When workers take holiday, do they use the 4 weeks 'normal' leave followed by 1.6 weeks 'additional' leave, or the other way around? The regulations don't say, but custom and practice is to assume it's the 4 weeks that gets used first.

It's such a headache trying to administer how much of which type of leave has been taken, and which pay calculation to use, that most employers just treat it as a single block of 5.6 weeks at 'normal pay' for simplicity.

Anyway, for a regular, full-time employee working 5 days a week, this means 28 days holiday (because 5.6 x 5 = 28). Because of the 'additional annual leave' regulation, you’re allowed to include public holidays in this entitlement; Easter, Christmas, spring and summer bank holidays, and so on.

Calculating annual leave for part-time workers works the same way. Just take the number of days (or hours) they work per week, and multiply that by 5.6. For example, if a part-time staff member works 2.5 days per week, they have 14 days holiday allowance per year (because 2.5 x 5.6 = 14).

Things get a bit more complicated for workers who only work part of the year (e.g. 'seasonal' or 'term-time' workers) and for workers on casual contracts with irregular hours with, possibly, varying rates of pay from assignment to assignment.

The problem is that to calculate 5.6 weeks' holiday, you need to somehow determine what 'one week' means.

If the hours can vary from week to week, what do we multiply by 5.6? And how much is that worth in terms of holiday pay?

To calculate holiday for flexible workers correctly, you need to approach it in two steps:

- Calculating the amount of holiday
*time*they are entitled to - Calculating the amount of holiday
*pay*they get for that time

The holiday time and holiday pay are two different things! Let’s look at each of these…

There are two ways to calculate holiday entitlement. Base the calculation on the average amount of time the person has worked over the past 52 weeks (the 'calendar week' method) or accrue holiday entitlement as a percentage of actual time worked (the 'percentage of time' method).

This method uses average hours worked over a reference period. Take the average amount of time they work in a week, over a 52-week period, ignoring any weeks where they did not work. Then multiply that by the statutory entitlement of 5.6 weeks.

For example, assume someone works between 20 and 30 hours a week, but has only worked 32 weeks over the past year. You add up all the hours they’ve worked and divide by 32. Let’s say the average works out as 24 hours per week over those 32 weeks. That would mean their holiday entitlement for the year is 24 x 5.6 = **134.4** hours (which we can round down under the new regulations to 134).

At first glance, this appears consistent with what a part time worker would get if they were working a regular 3 x 8 hour days per week. The statutory calculation is 5.6 x 3 = 16.8 days of holiday, and 16.8 days x 8 hours = 134.4 hours.

However, remember that the irregular hours worker has worked an average of 24 hours a week for 32 weeks, whereas the regular, part time worker has worked 24 hours a week for **46.4** weeks of the year, not 32.

This has been one of the major criticisms of the calendar week method. Irregular hours workers get the same amount of holiday for proportionately less time worked than their part time equivalent.

Note that this method is slightly different when used to calculate holiday pay. For holiday pay, you ignore weeks where no work was done, and go back in time additional weeks until you have a full 52-week reference period.

To avoid this problem with the calendar week method, many employers adopted a 'pro rata' way of calculating how much holiday is accrued, as a percentage of time worked.

Remember we said that the statutory entitlement is 5.6 weeks? Well, there are 52 weeks in a year, and 52 – 5.6 = 46.4. Therefore, there are 46.4 “working weeks” in a year. Now, 5.6 is 12.07% of 46.4, so that means the holiday allowance for a full time worker equates to 12.07% of their actual time spent at work.

So, the idea is that you can use the same percentage to calculate the accrual of holiday for workers on variable hours. The amount of holiday they accrue is 12.07% of the hours worked. This keeps holiday accrual for irregular hours workers consistent with their full and part time counterparts.

This method was previously unlawful after the Supreme Court decision in *Harpur Trust v Brazel*. However, changes to the legislation introduced from January 2024 mean that the 12.07% pro rata method is now a lawful approach from April 2024.

Using the same example as before, let's assume someone worked 24 hours per week for 32 weeks in the year.

- 24 hours x 32 weeks = 768 hours in total
- 768 x 12.07% = 92.7 hours of holiday allowance, which we round up to 93

As you can see, the percentage of time method results in fewer hours of holiday (93) than the calendar week method (134). This removes the unfair advantage that the irregular hours worker had under the calendar week method.

It is now lawful to use this 'percentage of time' method for holiday years that begin on or after 1 April 2024, but **only** for workers on irregular hours, or workers that only work part of the year (e.g. seasonal or term-time workers).

Many employers organise their holiday years in line with calendar years, i.e. from January to December. If this applies to you, then that means you can only adopt the 'percentage of time' method for the holiday year beginning January 2025 onwards.

Remember that we said at the start that it's not that simple? Well, there will be certain circumstances where the 12.07% method might not be straightforward.

For example, if the worker's employment status entitles them to 'statutory leave' such as maternity or family leave. Annual leave cannot be taken during a period of statutory leave, instead the annual leave should continue to accrue as normal.

It's a similar situation with sick leave. You continue to accrue holiday entitlement while off sick.

Clearly you can't calculate the percentage of time worked in these cases, as the individual doesn't work any hours during those periods of absence.

If we follow the government guidance, then the correct approach is to work out what the average weekly hours were prior to the leave and then use that average as the basis of a 'pro rata' percentage of holiday time accrued during the leave. It's a bit of a headache...

- First, figure out what their average hours per week were over the 52 weeks' leading up to the statutory leave, on the basis that there are 46.4 potential working weeks within a 52 week period. For example. if someone worked 768 hours in total over that 52 week period, then the weekly average would be 768 ÷ 46.4 = 16.552 hours per week.
- Next, work out what one week of accrued leave would look like under the 'percentage of time' method, i.e. 12.07% of the result from (1) above. Using our example, 16.552 x 12.07% = 1.998 hours holiday accrual per week.
- Finally, multiply the weekly accrual rate from (2) by the number of week's statutory leave to figure out how much holiday would be accrued over the duration of the statutory leave. For example, 40 weeks' maternity leave at 1.998 per week = 79.92 hours, which rounds up to 80 hours of holiday entitlement accrued during the maternity leave.

Phew! Did you notice in (1) that the average is calculated over 46.4 weeks, and not just the number of weeks where work was done as per the usual 'calendar week' method?

This is because the worker probably didn't work every single week (otherwise they'd be a regular worker) but you need to accrue holiday for every single week of statutory leave, so the average needs to be based on all weeks, not just some of them.

Now imagine a scenario where an irregular hours or part year worker takes multiple blocks of statutory leave over the course of the year. The process is basically the same, but you need to exclude previous weeks of statutory leave from the calculation...

- Again, figure out what their average hours per week were over the 52 weeks' leading up to the statutory leave. Divide by 46.4 potential working weeks within that 52 week period as before. However,
**exclude**any weeks that were covered by a previous block of statutory or sick leave. - Take the result of (1) above and multiply by 0.1207 work out what one week of accrued leave would look like under the 'percentage of time' method, i.e. 12.07%.
- Finally, multiply the weekly accrual rate from (2) by the number of week's statutory leave in this next block of leave to figure out how much holiday would be accrued.

The regulations state that a worker is entitled to 5.6 weeks’ paid holiday per year. We won't bother with the 4 weeks 'normal pay' versus 1.6 weeks 'basic pay' complications and just assume that all 5.6 weeks will be treated as 'normal pay'.

A part time worker doing 3 days a week at 8 hours a day would get 3 x 5.6 = 16.8 days of holiday per year. If they earned £12.50 per hour, each day would be worth 8 x £12.50 = £100. Therefore, the part timer’s holiday is worth £1,680 in pay. Simple enough!

An irregular hours worker may work very different hours from week to week. With the 12.07% pro rata method now recognised in the legislation, you might think that we can use that to easily figure out the worker's pay.

If we can work out how much holiday time they've accrued at 12.07% why not simply multiply that holiday time by their normal hourly rate of pay?

However, this is not the correct treatment unless you are 'rolling up' holiday pay (see below). The amendments to the regulations allow for the 12.07% method to be used for calculating holiday accrual, but they do not extend this method to the calculation of holiday pay. Workers remain entitled to 5.6 weeks' paid holiday, but because their pattern of work (and possibly rate of pay) for their assignments may vary, there's no clear definition of how much one week's pay is worth.

Therefore, we still have to use the 'calendar week' method, and work out their average earnings per week over the past 52 weeks.

Note that if there are weeks where the individual did no work, you skip those and go back additional weeks until you have 52 weeks' worth of pay data. If the individual has not been working for you for that long a period, then just use as much data as you have and calculate the average using the number of weeks they've worked.

Therefore, the average weekly pay over the past 52 weeks **where the individual did some work** should be used for one week of holiday pay.

But how does a worker on irregular hours actually take paid holiday, when their hours are not predictable?

After all, an irregular hours worker doesn't have any set hours but instead works a series of one or more 'assignments' which may or may not be on a predictable schedule. The whole point is to have them working during an assignment, not taking time off. Besides, there is ample opportunity for the worker to take a break between assignments.

Previously, providing a payment in lieu of accrued but unused holiday along with a regular pay cycle ('rolled up' holiday pay) was unlawful. You could only provide a payment in lieu of any unused holiday in a termination situation.

This meant that irregular hours workers had to ask for their paid holiday, and then you could pay them their holiday pay. The problem with this is that, if the worker didn't ask for their paid holiday, it would continue to accrue and the employer could end up with a considerable amount of unpaid holiday on their books to account for.

Another change introduced in January 2024 amendments was to make 'rolled up' holiday pay lawful for irregular hours workers.

Previously, it was unlawful to routinely give workers a payment in lieu of accrued holiday (i.e. 'rolling up' their holiday pay into the payroll cycle). This is because it could prevent workers from actually taking paid time off to rest.

However, for irregular hours workers, they have breaks between assignments which are an opportunity to rest.

So, for each pay period, you work out how much holiday they earned at 12.07% of time worked, multiply that by their hourly rate and that will be their 'rolled up' holiday pay for that pay period.

Let's look at an example together...

An irregular hours worker does a varying number of assignments, and each month they get paid in arrears for whatever work they did. Let's assume the 'pay period' is monthly.

Assume the individual worked 118 hours in the month at £12.50 per hour. The amount of holiday they will have accrued during that month is 118 x 12.07% = 14 hours (rounded down). The amount of holiday pay owed would be 14 x £12.50 = £175

Therefore, in the pay cycle at the end of the month, this worker would receive £175 for 'rolled up holiday' in their pay. This should be **itemised separately** on pay slips, not lumped in with the regular pay for hours worked.

The new rules apply to holiday years from April 2024, so if your company holiday year begins in January, that means January 2025

You can calculate holiday accrued by multiplying hours worked by 12.07% for irregular hours workers.

If using rolled up holiday pay, instead of workers booking holiday, multiply the accrued hours of holiday by their hourly rate and pay that as a separate line item in their pay packet.

If using the 'calendar week' method to pay workers who can book holiday, use the 52 week reference period. Ignore weeks without any work, and go back as far as necessary to get 52 weeks' worth if pay data. The calculate an 'average week of pay' from that 52 week reference period.

For most employers, it will be fairly straightforward most of the time. But, as you can see, it can be a bit of a headache in more complicated scenarios.

EMPLOYERS WE'VE WORKED WITH