Zero Hour Contracts Explained: Rights, Rules and How They Work

Written by Alexandra Applin Payroll Manager

Reviewed by Jenna Lightfoot Head of Payroll Operations Last reviewed 16 July 2026

9 min read

Flexible staffing has become a necessity for many UK employers, from hospitality groups managing seasonal peaks to care providers covering round the clock shifts. Zero hours contracts are the arrangement that makes this possible, allowing employers to offer work as demand requires without committing to fixed hours, and around 1.1 million people in the UK work on one, according to the Office for National Statistics^[5]. Despite their widespread use, they remain widely misunderstood, and the rules governing them are set to change over 2026 and 2027. We talk to employers running exactly this kind of rota, and the same question comes up again and again: are we actually doing this right? So here are zero hour contracts explained for employers, from the rights that come with them to how holiday pay is calculated, and what’s about to change.

What Is a Zero Hour Contract?

A zero hour contract is defined as an agreement where the employer doesn’t guarantee any set hours, and the worker doesn’t have to accept the shifts on offer. Nothing complicated. Work gets handed out as it’s needed. You’ll see these most in hospitality, retail, care and seasonal industries.

Used well, a zero hours contract isn’t a way to cut corners on staffing costs, it’s a genuine response to work that simply doesn’t arrive on a predictable schedule. If you’ve ever scrambled to cover a fully booked bank holiday weekend, or scaled a team back once the rush passed, you already understand the appeal. CIPD research ^[6]has found that 27% of businesses with 250 or more employees use them for exactly this. And the flexibility isn’t one sided, just as you’re free to offer work only when you need it, your staff are free to turn down shifts that don’t suit them.

One thing matters more than anything else here. Most zero hours staff count as ‘workers’ under the law, which comes with a baseline set of rights, but some are really employees once you look at how they’re actually treated. What decides that isn’t the contract, it’s the working relationship. Let’s take a bar worker who’s covered the same four shifts every week for two years and is basically expected to show up. That person looks a lot like an employee, contract or no contract, and a tribunal would likely agree. We see this exact scenario more often than you’d think, and getting this classification wrong is where most employers land in trouble.

Understanding the Law: Zero Hours Rights and Exclusivity

Zero hours doesn’t mean zero rights. GOV.UK confirms that workers on these contracts are entitled to the National Minimum Wage and statutory paid holiday in the same way as regular workers. Rest breaks and protection from discrimination apply too, since these are worker rights rather than contract-specific ones. Zero hour contract benefits also stretch to pension auto enrolment once earnings cross the qualifying threshold, and statutory sick pay if they meet the eligibility rules. And if someone’s expected to be on site waiting for work to come in, that time usually counts as paid working time. The real question is whether they’re genuinely free to use that time as their own. If they’re not, they should be getting paid for it.

One thing to flag clearly: exclusivity clauses don’t hold up in zero hours contracts, and haven’t done since the Small Business, Enterprise and Employment Act 2015, as Acas^[2] makes very clear. You can’t stop someone taking other work, even with a competitor, and you can’t penalise them for doing it.

If you’re new to understanding the law on zero hours, the safest way to think about it is simple. The contract is a scheduling arrangement, not a rights arrangement. The rights apply either way.

Zero Hour Contract Holiday Pay: The 12.07% Rule

Zero hours workers get the same statutory holiday as anyone else, 5.6 weeks a year, but working out what that means in hours and pounds takes an extra step because their hours never look the same from one week to the next.

As per GOV.UK guidance^[1], the method employers use is called the 12.07% rule. Why 12.07%? It’s simply 5.6 weeks divided by the 46.4 weeks that are left once you take holiday out of the year. Work the numbers through and someone putting in 130 hours a month has earned around 15.7 hours of paid holiday for it.

Record the actual hours worked in each pay period.
Multiply those hours by 12.07% to get the leave accrued for that period.
Add it to the worker’s running holiday balance, and pay leave at their average rate over the previous 52 paid weeks, skipping any weeks with no pay.
Pay out any accrued, untaken holiday when the worker leaves.

There’s a second option too. Rolled up holiday pay. Instead of building up a balance, you add a 12.07% top up straight onto every payslip, shown as its own pay item. Under government guidance on holiday pay for irregular hours workers^[7], this has only been lawful since holiday years starting on or after 1 April 2024, and only for workers with genuinely irregular hours or part year arrangements, so it’s worth checking someone actually fits that description before switching them onto it.

Where we see this usually go wrong is scale. One or two zero hours staff, tracking this by hand is manageable. Fifty or a hundred, and the small rounding errors that creep in every pay period start to add up, often unnoticed until someone leaves and challenges what they were owed, sometimes going back months or years. We’ve had payroll teams come to us mid year with a spreadsheet that no longer reconciles, trying to untangle months of accumulated small errors, which is always a lot more painful than building the process properly from day one. There’s also a new record keeping duty, in force since 6 April 2026 under the Employment Rights Act, requiring employers to keep records showing how holiday entitlement and pay were calculated, including anything carried over, for six years, and falling short is a criminal offence. Between the accrual maths and the new paperwork requirement, the businesses in the best shape will be the ones whose hours data already flows automatically into payroll, rather than living in a spreadsheet someone updates by hand.

Can You Stop Offering Hours to a Zero Hours Worker?

Short answer: yes, generally. There’s no rule saying you have to keep offering work, same as there’s no rule saying they have to accept it.

The catch: quietly dropping someone from the rota because they turned down a shift, complained, or asked about their rights is a quick way to end up in front of a tribunal. And if someone’s effectively been working like an employee, regular hours for a long stretch, or getting disciplined for saying no to shifts, they may have picked up employment rights along the way regardless of what the contract says, including protection from unfair dismissal after two years of continuous service. The best defence is boring but it works. Keep a record of every shift offered, every refusal, and your reasoning for how you rotate people, so if status ever gets challenged, the pattern speaks for itself. That record is only useful if it’s kept somewhere consistent and time-stamped, rather than spread across spreadsheets, text messages and notes.

Can a worker just stop taking shifts? Also yes, that’s the deal. It’s why zero hours contracts work best for genuinely unpredictable demand rather than a fixed weekly rota. If you keep needing the same person at the same times every week, you’re probably better off with a part time or annualised hours contract, and you’ll dodge most of the risks covered here.

Good practice right now means fair rotation, clear notice of shifts, and an honest conversation when work dries up. From October 2026, a lot of that stops being ‘good practice’ and becomes law.

The 2026 and 2027 Reforms: What’s Changing for Zero Hours Contracts

The Employment Rights Act got Royal Assent in December 2025, and the zero hours provisions are rolling in over several stages. The stated goal, in the government’s own words^[3], is to end exploitative zero hours contracts and give workers more security and predictability. Here’s the timeline as it stands:

April 2026: voluntary payments for cancelled shifts start appearing.
October 2026: workers get a legal right to reasonable notice of shifts and shift changes, plus compensation if a shift is cancelled or cut short at short notice.
Early 2027 (expected January): employers must offer zero hours and qualifying low hours workers a guaranteed hours contract that reflects what they actually worked over a set reference period.
Still to come: a lot of the detail is tied up in regulations, and there’s a government consultation^[4] open until 25 August 2026.

The guaranteed hours duty is the one to start preparing for now, because it lives or dies on data. You can’t offer someone a contract based on their usual hours unless you actually know, accurately, per person, what those hours were. If you’re tracking this in spreadsheets, you’ll be reconstructing that picture by hand. If your time and attendance data already flows into payroll, you’re already there. In our experience, the employers who leave this until the deadline is close are the ones who end up scrambling, so it’s worth a look now rather than in December 2026.

Managing Zero Hours Compliance with Connected HR and Payroll

Nearly every risk in this article comes back to the same problem: hours worked, holiday accrued, and shifts offered live in one place, while pay gets calculated somewhere else. That gap is manageable with ten zero hours staff. With two hundred, it’s a liability, and with the guaranteed hours duty arriving in 2027, that gap turns from an admin inconvenience into a compliance risk.

The compliance burden here isn’t intellectually hard, it’s just relentless. Twelve weeks of reference period, 12.07% accrual, rota changes, cancelled shifts. It’s the volume that breaks things, not the rules.

Zero Hours Contract FAQs

How many hours can you work on a zero hours contract?

There’s no legal cap beyond the usual Working Time Regulations, which limit average working time to 48 hours a week unless the worker opts out. In practice, hours are whatever the employer offers and the worker accepts, which is exactly why record keeping matters.

Do zero hours workers get sick pay?

Yes, where they qualify. Zero hours workers are entitled to statutory sick pay if their average earnings meet the threshold, worked out over the previous eight weeks. Irregular hours make that calculation fiddly, which is another job best left to payroll software rather than a spreadsheet.

Can you refuse shifts on a zero hours contract?

Yes. A zero hours worker can turn down any shift without penalty, and an employer cannot discipline them, cut their future hours or treat them unfavourably for doing so. That freedom is the worker’s half of the flexibility bargain.