It is not sufficient to pay staff on zero hour contracts in lieu of their holidays. Payment in lieu of accrued but unused holidays can only be made upon termination of employment.

The fundamental basis of zero hour contracts is the absence of mutuality of obligation. Therefore, the employer is under no obligation to offer work to the employee/worker and the employee/worker is also under no obligation to accept work offered.

An individual working under a zero hour contract may be:

• An employee during each assignment; or
• A worker, either:
  • at all times;
  • between assignments; or
  • only when working on an assignment.

Employees/workers engaged under zero hour contracts are entitled to paid annual leave during their employment, and to receive payment for any accrued but unused holiday only upon termination of their employment.

Therefore, payment in lieu of holidays will be more readily available to those workers engaged on separate, short-term assignments, as they will be paid for any unused holidays on the termination of each particular assignment.

It can be tricky to calculate holiday entitlement for casual workers, particularly when the term of employment is not known in advance. The most effective way to deal with this is to permit workers on zero hour contracts to accrue holidays at a notional rate each month, with an additional payment made alongside their final pay, for any untaken annual leave.

Where an assignment is longer or where an employer is willing to allow zero hour staff to take holidays, it would be pragmatic to subject such workers to the employer's holiday policies. Under such policies, it is possible that unused holidays will not be permitted to be carried over into the next leave year. Consequently, if the zero hour staff do not avail of their holiday entitlement, they will lose out on annual leave and holiday pay.

Employers cannot force zero hour staff to take holidays but they should make staff aware that failure to take annual leave is likely to mean that they lose out on their holidays, unless prevented by a statutory reason.

In any event, it is imperative that employers maintain records of hours worked and holidays taken by all staff, particularly those on zero hour contracts.