Your Thoughts: Zero Hour Contracts & Paid Holiday

We’ve recently learned in the media that thousands of workers, in the UK and the EU, who work zero hour contracts missed out on holiday pay because they were unaware of their employment rights or were life to by employers.

Citizens Advice claims that over 900,000 people don’t know what holiday benefits they are entitled to with their employer. Zero hour contracts pretty much enable employers to hire and not guarantee working hours, which is different to the gig economy.

The problem is, some employers make the most of their employees’ ignorance, and well, some employees prefer zero hour contracts, but are unaware of the laws surrounding. Just this week we also heard that the potential conservative government in the UK would implement many new employment law strategies, but not in regard to the elimination of zero hour contracts, unlike the Labour party, which has promised a ban on zero hour contracts and unpaid internships.

Below Lawyer Monthly hears from several sources throughout the country on the impacts, problems and benefits surrounding zero hour contracts and employee benefits.

Peter Burgess, Director, Retail Human Resources:

Although some political parties have pondered banning zero hour contracts, the fact remains that they are popular with employers and employees alike. The government has pondered reform but has so far not acted.

A good start for any reform would be to oblige employers using such contracts to ensure that their employees are made aware of their rights.  Holiday pay should accrue with time worked and the easiest way to deal with this is in the same way as temporary staff, where holiday pay is added to the hourly rate. Alternatively it could be compulsory to show on the payslip the amount of holiday that has accrued. Sadly there will always be employers to cheat their employees and break the law. There is no police body for employment rights, the system relies on individuals to use the tribunal system to get remedy and this is by no means straight forward.

Perhaps the time has come for employers to post notices on Employee Rights in the same way that they are now compelled to post notices about Health and Safety. None of these suggestions will solve the problem but it might help.

Noele McClelland, Employment Specialist and Partner, Thorntons:

We have heard a lot in the news about zero hours contracts yet it still seems that both businesses and individuals do not fully understand what their obligations and rights are.  The Working Time Regulations 1998 came into force nearly 20 years ago and gave not only employees, but workers, the right to a minimum amount of paid leave. This is an important health and safety protection which recognises the importance of having time off work for rest and recuperation.

This was initially 4 weeks a year (20 days for people who work full time) and was later increased to 5.6 weeks (28 days) with effect from 2007.  We are therefore not talking about new rights.  In some cases businesses may be under the mistaken impression that people on zero hours contracts are not entitled to paid holidays but that is completely wrong.

Many such contracts in reality involve individuals working regularly, but even where there are weeks in which an individual does not do any work there is a method by which holiday pay is calculated.  This typically involves looking back at the last 12 weeks in which they did work to work out their entitlement.

What is concerning is if individuals are being told by their “employer” that they are not entitled to any paid holidays and they just accept this.  From 1^st July 2015 any claims for unlawful deductions for wages can only be backdated for a period of 2 years, and in some cases this non-payment could have been going on for years.

Also following the recent mass cases involving holiday pay claims and in particular the case of Bear Scotland v Fulton (which was back to the EAT in December ’16 and the decision is awaited) it was held that if there was a gap of 3 months or more between non-payment of holiday pay then the claim would not be allowed for being out of time (allowing for any extension of time for ACAS early conciliation of course).

This means businesses have to do an audit to see if they have been paying holiday pay or not, and individuals have to bear in mind that the longer they leave it without bringing a claim (particularly if it is ongoing) they may be losing their ability to recover these sums in an employment tribunal.

Emma O’Leary, Employment Law Consultant, ELAS Group:

When zero hours contacts are properly constructed and not abused, many workers actually like them. A true zero hours contract contains no mutuality of obligation – the employer does not have to provide hours and the worker does not have to accept them. The idea is that they are properly ad hoc contracts where an employer gives them work as and when required and they take it when they can. Someone on a zero hours contract can have as many other jobs as they like, giving them the flexibility to work around their own lifestyles or other jobs. It can work well in industries such as care where carers work for a number of care providers, picking up shifts to cover holidays or sickness.

However as we’ve seen in the news recently, zero hours contracts are open to abuse by employers and one of the concerns is that people on zero hour contracts are not receiving holiday pay, either because they don’t know they can claim it, their employer doesn’t know that they should be receiving it or, in some cases, the employer does know but denies holiday to deliberately avoid their obligations.

People on zero hours contracts are, in most cases, considered to be workers. Whilst this does not necessarily afford them the full complement of employment rights, it does provide them with basic rights, one of which is entitlement to annual leave under the Working Time Regulations. Workers are entitled to accrue annual leave based on the hours they work pro rata based on the statutory entitlement of 5.6 weeks.

Whilst it can be a headache to calculate holidays for irregular work patterns, the accepted method is to use a formula. The holiday entitlement of 5.6 weeks is equivalent to 12.07% of the hours worked, or just over seven minutes for each hour worked.

This is calculated by dividing 5.6 weeks holiday by 46.4 weeks worked (52 weeks in the year minus 5.6) and multiplying by 100. Note: It’s necessary to exclude the 5.6 weeks holiday from the calculation as you would not be present during those weeks in order to accrue annual leave.

So for example, if you have worked 10 hours then you will be entitled to 72.6 minutes paid holiday:
12.07% divided by 100 x 10 hours = 1.21 hours (72.6 minutes)

Failing to ensure that all workers receive their annual leave can result in an employment tribunal claim which, depending on time limits, could go back as far as the last holiday year.

Leon Deakin, Employment Team Partner, Coffin Mew:

It comes as absolutely no surprise to me that such a high percentage of workers on zero-hours contracts are not aware of their holiday rights. Whilst there are undoubtedly going to be some businesses that deliberately play the system to save money, the majority of cases I see result from a total ignorance as to how the law in this area works.

I think there is another element of this story which has not been covered and is likely to be relevant. Put simply, calculating holiday pay for temporary workers or those who work atypical patterns, including individuals on zero-hours contracts, can be notoriously difficult. Indeed, I am not ashamed to admit that carrying out complex calculations for clients with staff working tricky patterns has occasionally caused me to throw down my calculator in utter despair, especially when you put bank holiday entitlement into the mix!

This combination of ignorance and complexity is obviously a dangerous cocktail but if that is the case then what is the answer?

For me it is definitely not a ban on zero-hours contracts. Contrary to what may have been suggested, there is a proportion of the workforce that genuinely like the flexibility offered by such an arrangement. There is also a proportion of industry that is prepared to comply with the law and needs to work in this way to maintain a competitive edge or simply stay afloat. Such companies should not be penalised. Accordingly, I think the only workable solution beyond greater education all round would be to introduce a simple statement that an employer must issue at the same time as the written contract outlining exactly what benefits the individual is entitled to. Failure to do this could give rise to a claim and a fixed amount of compensation in the same way that applies for a failure to issue written terms of employment. It would not be unduly onerous time or expense wise to do this; the statement could easily be in a set format. Whilst this would not stop those who intentionally flout the rules, it would raise awareness and make it harder to plead ignorance.

The ‘difficult’ part of the equation is harder to solve purely due to the multitude of patterns that can be worked. Employers can help themselves and the individuals they engage by properly thinking things through in advance and then being transparent as to how they will deal with holiday entitlement. Crucially, in all cases, the contract should state what the method for calculating holiday entitlement is, when this calculation will be carried out and how bank holidays are treated.

Whilst this may seem like a lot of effort and additional admin, it is a necessary by-product of having a flexible work force. If nothing else, a well thought through and drafted contract may save me a few extra calculators each year!

Darren Maw, Managing Director, Vista:

Can we really say that issues of unscrupulous employers and workers that are unaware of their rights are attributable to zero-hours contracts? We think not

Previous criticism of zero-hours contracts has focused on the fact that often individuals are provided with irregular or low levels of work, preventing any level of certainty or security. Now it seems that the focus has shifted to their right not to work.

The right to paid annual leave is of course a fundamental right and one that is worthy of protection. Zero hour workers are entitled to annual leave, (amongst other things) in the same way as regular workers. Provided that the contract provides for a payment in respect of annual leave upon termination, zero hours workers are not disadvantaged.

We should not overlook the fact that some workers may find themselves on the receiving end of ‘dirty tactics’ but that comes down to unscrupulous employers and is not limited to those on zero-hours contracts. When zero-hours contracts are deployed ethically, the flexibility benefits both the employer and the employee but it could benefit from tighter regulatory framework.

Given the on-going conversations surrounding employment law post Brexit and General Election, an annual license for approved organisations that use zero hour contracts ethically could be something the incoming Government could explore.

Any employer that refuses or fails to provide paid holidays is liable under the Working Time Regulations 1998 (‘WTR’). Almost 20 years after the introduction of the WTR, rights such as paid annual leave are well known. Now an endless supply of information about employment rights is available online, with a smart phone and a few spare minutes, an individual can quickly and easily clarify their employment rights. In this respect, individuals are already adequately protected, and the recent extensive litigation regarding annual leave and pay has shown that this issue is not exclusive to zero-hours arrangements.

We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!