Zero hour contracts are used by some of the biggest companies in the UK to help manage their payroll costs and offer flexible working to their staff. Popular groups that take zero hour contracts including students, the semi-retired and people looking to work variable, flexible hours while raising children. As an employer, it is important to have a clear process in place on how to process payroll for zero hour contracts.
Zero hour contract basics
It is worth noting that even when someone is on a zero hours contract, they are still entitled to their statutory employment rights. They will be viewed by HMRC as either being a ‘worker’ or an ‘employee’. As a worker, they need to have at least the national minimum wage for their hourly pay, annual leave that is paid as well as normal rest breaks and discrimination protection.
Zero hour contracts should be used where ‘work demands are irregular or there is no constant demand for staff’ according to HMRC. This is also an acceptable route for people who want a certain level of flexibility in their working hours to accommodate study or childcare. A few examples of recommended reasons for zero hour contract include:
- A new business who needs help but not in a consistent way while building up their client base
- Seasonal work where demands are high at a certain time of the year such as Christmas
- Unexpected sickness leave
- Testing a new service
Zero hour contracts are not considered to be appropriate if someone works regular hours over a continuous period of time. So if staff work 9 am until 2 pm three days a week for 12 months, then a permanent part-time contract would be the option, rather than a zero hours contract.
Managing hours worked
Once you know that zero hour contracts are the right solution for this employee and for your business, you next need to know how to manage hours worked and ensure they are paid correctly. The most effective way to do this is to use Payroll HR modules – this removes the need for diaries or paper-based systems. You can also get online options that allow you to easily collect data for payroll staff.
The data needs to be sent to the payroll department before the end of the payroll period. This means they can ensure that the zero hours contract staff are paid the correct wage at the right time. You may want to consider outsourcing this to a payroll expert as managing normal contracts and zero hour contracts can become time-consuming and complicated.
Zero hour contract holidays
Outsourced payroll teams can help you manage zero hour contract holiday entitlement as well. By law, each employee gets 5.6 weeks holiday a year if they work five days a week. Because zero hour contract workers can vary, it is then necessary to work out how many hours they have worked to calculate holidays accumulated.
The easiest way to work this out is that statutory entitlement is 12.07% of the working year so multiply this figure by the number of hours they have worked to see how many holidays they have available. Contact us using the details below to find out more about our services.