How to Run Payroll for Zero-Hours Workers in the UK
A complete guide to running payroll for zero-hours workers in the UK. Covers NMW compliance, holiday pay accrual at 12.07%, rolled-up holiday pay, PAYE, and the Employment Rights Act 2025.
Zero-hours workers are one of the trickiest groups to pay correctly. Their hours vary week to week, their holiday entitlement accrues differently, and payroll software isn't always set up to handle them out of the box. Get it wrong and you risk NMW breaches, holiday pay claims, and tribunal complaints.
This guide covers everything you need to know about running payroll for zero-hours workers in the UK — from calculating pay to holiday entitlement and what the Employment Rights Act 2025 will change.
What Counts as a Zero-Hours Contract?
A zero-hours contract provides no guaranteed minimum hours. The employer offers work when it's available, and the worker is only paid for the hours they actually work. In most zero-hours arrangements, the worker doesn't have to accept work when it's offered — though it's worth reviewing your specific contract wording, as some older agreements include exclusivity clauses, which have been unenforceable since 26 May 2015 (Employment Rights Act 1996, section 27A).
A zero hours contract is defined in law (section 27A of the Employment Rights Act 1996), but that doesn't settle the person's employment status. Most people on zero-hours contracts are workers rather than employees, though some are employees — it depends on how the arrangement works in practice. This distinction matters: workers have fewer rights than employees (no unfair dismissal protection, no statutory redundancy pay), but they do have key rights including NMW entitlement, holiday pay, and protection from discrimination.
See our guide to managing zero-hours contracts for a full breakdown of worker rights and employer obligations.
Calculating Pay for Zero-Hours Workers
Zero-hours workers are paid for every hour worked — there are no rounding shortcuts and no minimum pay for turning up. The key rules are:
- National Minimum Wage always applies. The current rates (from 1 April 2026) are £12.71/hour for workers aged 21 and over, £10.85/hour for 18–20 year olds, and £8.00/hour for under 18s and apprentices. Check GOV.UK's current rates — they change each April.
- Pay for every hour worked. If a worker is required to be available (e.g., waiting on-site between tasks), that time may count as working time for NMW purposes.
- Overtime rates apply if agreed. If your contract specifies an overtime rate, it must be applied for qualifying hours. There is no statutory right to overtime pay beyond NMW, so this is entirely contractual.
- Track hours to the minute. NMW compliance is calculated on total hours in a pay period against total pay. Any underpayment — even by pennies — is a breach. Precise timekeeping is essential.
Use our minimum wage calculator to check NMW compliance for any pay period, and our overtime pay calculator for workers on agreed overtime rates.
Holiday Pay for Zero-Hours Workers (The Tricky Part)
Holiday entitlement for zero-hours workers is the area most likely to trip up payroll. The rules changed significantly with the 2023 amendments to the Working Time Regulations, which came into force in January 2024 and apply to leave years starting on or after 1 April 2024. For the employee-facing rules (entitlement, bank holidays, leavers), see our guide to zero hour contract holiday pay.
Zero-hours workers accrue holiday at 12.07% of hours worked in each pay period, rounded to a whole hour.This rate is derived from the statutory minimum of 5.6 weeks' holiday per year — which, expressed as a proportion of the remaining working weeks, works out at 12.07%.
For example: a worker paid weekly works 25 hours this week. 25 × 12.07% = 3.02 hours, and because the law treats a fraction under half an hour as nothing (and half an hour or more as a full hour), they accrue 3 hours of holiday entitlement for that week. At 30 hours it would be 3.621, which rounds up to 4.
Holiday pay must be calculated based on the worker's average hourly rate over the 52-week reference period — using only weeks in which they were paid (weeks with no pay are skipped, counting back up to 104 weeks). This means a zero-hours worker paid different rates across the year must have their holiday pay calculated on a rolling average, not just their current rate.
Rolled-Up Holiday Pay
For leave years starting on or after 1 April 2024, employers can legally pay rolled-up holiday pay to irregular-hours workers (which includes most zero-hours workers). This means adding 12.07% to every payslip as a holiday premium, labelled clearly and separately from basic pay.
For example: a zero-hours worker earns £200 in a given week. Their rolled-up holiday pay is £200 × 12.07% = £24.14, so the total payslip shows £224.14, with £24.14 labelled as "holiday pay." The worker receives their holiday premium as they earn — rather than claiming it when they take leave.
Rolled-up pay is administratively simpler for both employer and worker. However, it does not remove the worker's right to take time off — it only changes when the holiday pay is received.
Use our zero-hours holiday calculator to work out accrual and rolled-up pay, or read our guide on how to calculate holiday entitlement in the UK.
The 52-Week Reference Period Explained
When a zero-hours worker takes holiday (and isn't being paid rolled-up pay), you calculate their holiday pay using the average weekly pay over the previous 52 weeks — but only counting weeks in which they were paid. Weeks with no pay are skipped and you go further back (up to 104 weeks) to find 52 paid weeks.
If the worker has been employed for fewer than 52 weeks, use the number of complete weeks they have worked. The calculation must include:
- Basic pay for hours worked
- Regular overtime pay (if overtime is worked with sufficient regularity)
- Regular commission payments that form part of normal remuneration
Exclude one-off bonuses, expenses, and genuinely irregular commission. The goal is to reflect what the worker would normally earn in a typical working week.
Our zero hours holiday calculator works out the 12.07% accrual and rolled-up pay for a pay period; the 52-week average itself comes from your payroll records.
PAYE and Payroll Processing for Zero-Hours Workers
Despite their irregular hours, zero-hours workers are still subject to PAYE — the same RTI (Real Time Information) rules that apply to all employees and workers apply here. Key points:
- Submit RTI on or before each payday. Even if a worker earns nothing in a pay period, if they remain on your payroll you may still need to submit a Full Payment Submission or Employer Payment Summary.
- Use the correct tax code. Default to 1257L (the standard code for 2026/27; HMRC's emergency code is 1257L on a non-cumulative basis) unless the worker has provided a P45 or HMRC has issued a different code.
- National Insurance thresholds apply on earnings, not hours. There is no minimum hours threshold for NI. NI is triggered when weekly earnings exceed the Primary Threshold (£242 a week for 2026/27). A worker earning above this in any given week will pay NI on that week's earnings.
- Itemised payslips are a legal requirement. Since April 2019, workers with variable pay must receive payslips showing the number of hours worked (not just a total pay figure). For zero-hours workers, each payslip must itemise hours worked.
See our payroll integrations page for how TimeTally sends approved hours to Xero or QuickBooks (as a wages journal) or to any payroll system as a CSV. Your payroll software still runs PAYE and makes the RTI submissions.
Employment Rights Act 2025: What Changes for Zero-Hours Workers?
The Employment Rights Act 2025 brings in new protections for zero-hours workers. The government lists them for 2027, with "timings [to] be updated after consultation", and the detail (reference periods, notice lengths, payment amounts) will be set in regulations:
- Right to guaranteed hours. Workers who regularly work more than their contracted hours over a reference period will have the right to be offered guaranteed hours that reflect the hours they actually worked. The worker can accept or turn the offer down.
- Right to reasonable notice of shifts. Zero-hours and similar workers must be given reasonable notice of shifts and of changes to them. The minimum notice will be set by regulations and has not been announced.
- Compensation for cancelled shifts. If a shift is cancelled, moved or cut short at short notice, workers will be entitled to a payment, capped at what they would have earned for the lost hours. The amount and the short-notice period will be set by regulations.
In practice, this means that zero-hours arrangements used to give businesses flexibility with staff who actually work regular, consistent hours may need to change. If a worker has regularly worked a steady pattern over the reference period, you may have to offer guaranteed hours that reflect it. See our guide to shift notice under the Employment Rights Act 2025.
Read our full analysis of the Employment Rights Act 2025 and what it means for employers.
Record-Keeping Requirements
Running payroll for zero-hours workers creates specific record-keeping obligations across multiple regulations:
- Payroll and minimum wage records. Keep PAYE records for at least 3 years from the end of the tax year they relate to, and records showing you paid the minimum wage (including hours worked) for 6 years. HMRC can ask for them during a National Minimum Wage inspection.
- Working Time Regulations records. You must keep records that demonstrate workers are not exceeding the 48-hour average working week (unless they have opted out). For zero-hours workers working multiple jobs, this can be complex — you are only responsible for hours worked for you, but if you know a worker is close to the limit you should take reasonable steps.
- Itemised payslip records. Since April 2019, payslips for variable-pay workers must show hours. Keep copies of all payslips issued.
- Holiday accrual records. Keep a running record of holiday hours accrued and taken — particularly important if not using rolled-up pay, as disputes about the 52-week reference period are common.
See our guide to labour law compliance and HMRC timesheet requirements for the full record-keeping framework.
How TimeTally Helps With Zero-Hours Payroll
Managing zero-hours payroll manually — across timesheets, holiday accrual calculations, and payroll exports — is time-consuming and error-prone. TimeTally is built to handle it automatically:
- Precise clock-in/clock-out tracking. Zero-hours workers clock in and out on the TimeTally app for iOS and Android. Hours are recorded to the minute, giving you an exact record of every working period — critical for NMW compliance.
- Holiday built up from hours worked. Each approved timesheet adds leave at your rate (12.07% by default), rounded to a whole hour as the law requires. Workers can see their balance in the app.
- Payroll export. Approved hours and paid leave go to Xero or QuickBooks as a wages journal, or to any payroll system as a CSV.
- Records you can show. Clock-in and clock-out times, and when each timesheet was submitted and approved, are kept for every worker.
Learn more about TimeTally's zero-hours contract features, explore our payroll integrations, or try our zero-hours holiday calculator to see the accrual maths in action.