A UK Business Owner’s Guide To Holiday Pay For Zero-Hours And Irregular Workers

Holiday pay rules for irregular workers are one of the most misunderstood areas of UK employment law. So it’s no surprise that SMEs find the legislation complicated. But it’s not because business owners aren’t trying to get it right. The rules changed in April 2024. Many of the most-visited government pages still carry outdated information and the gap between what employers think they should do and what they’re actually required to do is wider than most realise.

If you employ people on zero-hours contracts, casual arrangements or irregular hours,  whether in hospitality, retail, healthcare or any other sector, this blog is for you.

Here’s what we’ll cover:

• Whether zero-hours and irregular workers are entitled to holiday pay (spoiler: yes).
• How to identify who counts as an “irregular hours worker” under current UK law.
• How to calculate both holiday entitlement and holiday pay correctly.
• What rolled-up holiday pay is and whether you should use it.
• The most common (and costly) mistakes employers make.
• What to do when a flexible worker leaves.

Do zero-hours and irregular workers get holiday pay?

Yes. Almost all workers in the UK (not just employees) are legally entitled to paid holiday under the Working Time Regulations 1998. That includes people on zero-hours contracts, casual workers, bank staff and anyone whose hours vary from week to week. There is no qualifying period and no minimum hours requirement.

The statutory minimum is 5.6 weeks of paid leave per year. For someone working a standard five-day week, that works out to 28 days including bank holidays. For someone whose hours vary, entitlement is calculated in proportion to the hours they actually work.

The most common misconception employers hold is that casual or zero-hours workers somehow fall outside these rules. They don’t. If someone is a “worker” in the legal sense (we’re not talking about self-employed contractors here), they’re entitled to holiday pay. 

It’s important to keep in mind that simply labelling someone as self-employed offers no protection if the reality of the working relationship suggests otherwise. Employment tribunals and courts will look at the actual nature of the arrangement, rather than the title given in the contract.), they’re entitled to holiday pay. 

Getting this wrong is one of the fastest routes to an Employment Tribunal claim. So for UK business owners and HR professionals, knowing everyone’s entitlements is a must. 

What counts as an irregular-hours worker?

Under the UK’s 2024 holiday pay reforms, an irregular-hours worker is someone whose paid hours are wholly or mostly variable between pay periods. This differs from a part-year worker who works for only part of the year (for example, term-time only), with defined periods where they don’t work at all. However, both categories now qualify for the 12.07% accrual method described below.

In practice, irregular hours workers often include:

• Hospitality and events staff called in to cover busy periods.
• Seasonal retail workers hired for Christmas or summer.
• Bank healthcare workers covering shifts across multiple wards.
• Agency workers on variable assignments.
• Casual event staff.

Here’s a quick comparison to help you identify which category applies:

Note: Agency workers are also entitled to statutory holiday pay. Where an agency worker is engaged on an irregular-hours basis, the same holiday accrual rules can apply, including the 12.07% accrual method where permitted. Holiday pay is typically the responsibility of the agency or umbrella company acting as the employer, although hirers should be aware that these costs are often reflected in agency fees and workforce budgets.

How much holiday entitlement do zero-hours workers get?

The statutory minimum is 5.6 weeks per year, pro-rated to the hours actually worked. Because irregular hours workers don’t have a fixed schedule, entitlement accrues as they work rather than being granted in a lump sum at the start of the leave year.

What is the 12.07% holiday accrual method?

The 12.07% holiday accrual method is a way for employers to calculate holiday entitlement for irregular-hours and part-year workers, such as zero-hours workers or casual staff.

Under UK law, workers are entitled to 5.6 weeks of paid annual leave each year. The 12.07% figure represents the proportion of annual leave a worker accrues based on the hours they work.

The percentage is calculated like this:

5.6 ÷ 46.4 = 12.07%

In plain English: for every hour a worker works, they accrue approximately 7 minutes of holiday entitlement.

This method has been the  statutory approach for irregular hours and part-year workers from leave years starting from 1 April 2024. It does not apply to standard employees with fixed, regular hours. They continue to receive their full 5.6-week entitlement at the start of the leave year.

Bank holidays and zero-hours workers

Bank holidays are a common source of confusion. Zero-hours workers do not have an automatic right to paid bank holidays unless the contract specifically says so. However, bank holidays can count towards the 5.6-week statutory entitlement if the employer designates them as such and many do.

If a worker is on a rolled-up holiday pay scheme (covered below), you need to be explicit about how bank holidays are treated within that arrangement. The best advice for SMEs is straightforward: state clearly in the contract how bank holidays are handled. Silence here is where disputes start.

How to calculate holiday pay for irregular workers

This is where many employers go wrong and It’s important to understand that there are two separate questions here:

1. Holiday entitlement: How many hours or days of leave has the worker accrued? (Answered by the 12.07% method above.)
2. Holiday pay rate: What do you actually pay them when they take that leave? (Answered by the 52-week reference period below.)

The 52-week reference period

To calculate the correct pay rate for a period of leave, take the worker’s average weekly pay over the last 52 weeks in which they actually worked and received pay.

Key rules:

• Exclude weeks with no pay. If a worker had unpaid weeks, skip those and go further back, up to a maximum of 104 weeks.
• Fewer than 52 weeks employed? Use all the paid weeks available.
• Divide the total earnings by the number of paid weeks to get the average weekly pay. That’s the rate you use.

What payments must be included in holiday pay?

This is the most common and costly mistake UK employers make. Holiday pay is not just basic pay. 

Here’s the breakdown:

Pro tip: The ‘Two-Pot’ Rule: Under UK law, the statutory 5.6 weeks of leave is actually split into two “pots”:

• The first 4 weeks: Must be paid at your “normal remuneration” rate (including the regular overtime and commission listed in the table above).
• The remaining 1.6 weeks: Can legally be paid at “basic” pay only.

While you can pay these at different rates, most SMEs find it significantly easier and safer from an  employment tribunal perspective to pay the full 5.6 weeks at the higher “normal remuneration” rate. This avoids complex “pot-tracking”, helps minimise the risk of claims under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations where an irregular-hours worker is employed on a part-time basis and ensures workers feel they are being treated fairly.

Rolled-up holiday pay explained

Rolled-up holiday pay is a way of paying holiday entitlement as you go. Instead of paying a separate amount when the worker takes leave, you add a 12.07% supplement to every pay packet. The idea is that the worker receives their holiday pay spread across the year rather than as a lump sum when they’re off.

Is it legal? Yes, for irregular hours workers and part-year workers, for leave years starting on or after 1 April 2024. This is a significant change from the previous position. Prior to the 2024 reforms, case law held that rolled-up holiday pay was unlawful. It’s now explicitly permitted for qualifying workers.

To be compliant, rolled-up holiday pay must:

• Be clearly itemised on the payslip (it cannot be buried in an hourly rate).
• Be at least 12.07% of total pay for each pay period.
• Not replace the worker’s right to actually take leave.

That last point matters. Rolled-up holiday pay does not mean a worker has “used up” their holiday. They still have the right to take time off. However, when they take that leave, they will not receive an additional payment at the time, as their holiday pay has already been included and paid through their regular wages.

Pros and cons for SMEs

Our take: Rolled-up holiday pay is intended for irregular-hours and part-year workers, such as seasonal events staff or casual hospitality cover where hours fluctuate significantly. For these groups, it can be a practical way of simplifying holiday pay administration.

For workers on regular hours, rolled-up holiday pay is not appropriate. In those cases, the accrual method with holiday pay paid at the time of leave is the correct approach and is generally clearer and less likely to cause confusion or disputes.

Common holiday pay mistakes employers make

Mistakes can easily happen when it comes to holiday pay. But knowing the most common ones can prevent you from making them too. 

• Excluding regular overtime from the 52-week average: The biggest and most expensive mistake. If someone regularly works overtime, it must be included in the reference period calculation. This has been settled law for over a decade.
• Using 12.07% for workers who don’t qualify:The 12.07% accrual method applies to irregular hours and part-year workers. If you apply it to a full-time employee with fixed hours, you may be underpaying them — they’re entitled to their full 5.6 weeks from day one.
•  Including unpaid weeks in the 52-week average: Weeks where no pay was earned must be skipped. Including them artificially deflates the average and results in underpayment.
• Assuming casual workers aren’t entitled to holiday: They are and this mistake is likely to result in a claim for backdated holiday pay.
• Not itemising rolled-up holiday pay on payslips: If you use rolled-up pay, it must be shown as a separate line on the payslip. A general rate that includes it invisibly is not compliant.
• Not paying out accrued holiday when a worker leaves: When a zero-hours or irregular hours worker’s engagement ends, any accrued but untaken holiday must be paid as part of the final pay run. See the checklist below.
• Leaving bank holiday treatment unspecified in the contract: If the contract is silent on bank holidays, expect a dispute. Be explicit. 
• Paying in lieu of statutory holiday at the end of a holiday year: This is unlawful. Statutory holiday cannot be replaced with payment instead of leave (except on termination, where accrued but untaken leave must be paid).
• Not rolling over holiday for those on maternity leave or long-term sickness: In certain cases, statutory holiday must be carried forward. Failing to allow this can result in underpayment claims.

What changed in the 2024 holiday pay reforms?

To understand why the rules changed, it helps to know what triggered the change.

In 2022, the Supreme Court ruled in Harpur Trust v Brazel that part-year workers, specifically term-time school staff, could not have their holiday entitlement pro-rated using the 12.07% method. The ruling meant that some part-year workers received proportionally more holiday than their full-year colleagues, because the 12.07% method was deemed not to apply to them. It created a genuine anomaly and significant confusion for employers.

Parliament responded with the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, which took effect for leave years starting on or after 1 April 2024. Here’s what changed:

• The 12.07% accrual method is now the statutory approach for irregular hours and part-year workers.
• Rolled-up holiday pay is now legal for these workers, reversing the prior case law position.
• Carry-over rules were simplified.
• The 52-week reference period continues to apply for calculating the pay rate.

Who do the reforms apply to? Workers whose leave year starts on or after 1 April 2024. If your leave year runs January to December, the new rules applied from 1 January 2025. If it runs April to March, they applied from 1 April 2024.

Carry-over, termination and accrued holiday

Accrued holiday doesn’t disappear when a flexible worker leaves or falls ill. Here’s what you’re required to pay and when.

When can holiday be carried over?

Holiday can be carried over to the next leave year in specific circumstances:

• Not properly managing holiday under Regulation 13 of the Working Time Regulations: Employers must give workers a reasonable opportunity to take their leave, encourage them to take it, and clearly inform them that untaken leave may be lost at the end of the leave year. Failure to do so can result in holiday carrying over and backdated holiday pay claims.
• The worker was on sick leave and unable to take it: Up to 4 weeks of statutory holiday may be carried over. Where carried over due to sickness, it must generally be taken within 18 months of the end of the leave year in which it accrued.
• The worker was on maternity, paternity, or other family leave: Statutory holiday must be carried over where it cannot be taken during the leave period, meaning workers should not lose their entitlement while on family-related leave.

In most other cases, workers are expected to take their leave within the leave year. Employers should actively encourage this. Carrying over large balances creates liability.

Payment in lieu

You can’t pay a worker instead of letting them take holiday during employment. Payment in lieu is only permitted when the employment relationship ends.

Checklist: Final payroll run when a zero-hours worker leaves

When a flexible worker’s engagement ends, work through these steps:

• Calculate total hours worked in the leave year to date.
• Apply 12.07% to find total holiday entitlement accrued.
• Subtract any leave already taken or already paid under rolled-up arrangements.
• Use the 52-week reference period to calculate average weekly pay.
• Convert the remaining holiday hours to a monetary value and include in the final pay run.
• Record everything — see the section below on the new record-keeping obligation.

How SMEs can simplify holiday pay management

Managing holiday pay for irregular workers manually is time-consuming for business owners and HR professionals. Tracking reference periods, excluding unpaid weeks, itemising rolled-up pay, maintaining records across a variable workforce is a lot to deal with. The more workers you have and the more their hours vary, the greater the risk of a calculation error.

To mitigate the risk of backdated claims (which can look back up to two years) and general HMRC or Employment Tribunal scrutiny, it is strongly recommended that businesses maintain detailed records for at least six years. The new duty to retain records for six years reflects current best practice in employment and payroll record-keeping and provides a much stronger position if a historical claim is ever raised. This includes keeping track of dates of leave taken, hours or days worked, the specific rates paid and the calculation methods used.

This is exactly where integrated HR and payroll software earns its keep. Employment Hero’s platform handles:

• Automated 12.07% accrual calculations as hours are logged.
• The correct 52-week reference period, including exclusion of unpaid weeks.
• Rolled-up holiday pay configuration with compliant payslip itemisation.
• Leave record-keeping built in from day one.
• Visibility for both employer and worker through a single platform.

Using integrated HR and payroll software can help SMEs reduce manual calculations and stay compliant with changing holiday pay rules, including record-keeping requirements that many employers underestimate.

If you’re heading into a peak hiring season with a flexible workforce, now is the time to check whether your current systems are set up correctly.

Get holiday pay right with Employment Hero

Holiday pay compliance for zero-hours and irregular workers doesn’t need to be complicated. The 2024 reforms actually made things clearer for most SMEs. There’s now a single, consistent accrual method for irregular hours workers and rolled-up holiday pay is a legitimate option where it suits your business.

The biggest risks are the ones that come from doing nothing: still using outdated methods, ignoring the requirement to include overtime in reference period calculations, or not having your records in order ahead of the new six-year retention obligation.

Review your current approach. Check that your contracts say something clear about bank holidays. Make sure your payroll calculations include all the payments they should. And if you’re heading into a busy hiring season, make sure the systems you’re using can handle it without manual workarounds.

Want to see how Employment Hero can support your business?