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 2024 Employment Rights Bill changes.
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 the 2024 Employment Rights Bill changes.
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 agreements include exclusivity clauses (which have been unlawful since 2015).
Importantly, "zero-hours" is not a legal term in the UK. The correct legal classification is usually casual worker or simply worker — not an employee. 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 April 2025) are £12.21/hour for workers aged 21 and over, £10.00/hour for 18–20 year olds, and £7.55/hour for under 18s and apprentices. Check HMRC'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.
Zero-hours workers accrue holiday at 12.07% of hours worked.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: an employee works 25 hours this week. They accrue 25 × 12.07% = 3.02 hours of holiday entitlement for that week.
Holiday pay must be calculated based on the worker's average hourly rate over the 52-week reference period — using only weeks in which work was actually done (weeks with no hours are excluded). 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
Since 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 actually worked. Weeks where no work was done are skipped and you go further back to find a complete 52-week sample.
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 pro-rata holiday calculator handles reference period averaging automatically.
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 personal allowance code for 2025/26) 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/week for 2025/26). 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 connects to your payroll software to automate RTI-ready exports.
Employment Rights Bill 2024: What Changes for Zero-Hours Workers?
The Employment Rights Bill 2024 (currently progressing through Parliament) introduces significant new protections for zero-hours workers. The headline changes expected to come into force from 2026 include:
- Right to guaranteed hours. Workers who regularly work consistent hours over a 12-week reference period will gain the right to be offered a contract that reflects those hours. Employers will not be forced to give employment status, but must offer a contract with guaranteed hours that mirrors the pattern of work.
- Right to reasonable notice of shifts. Zero-hours workers must be given reasonable notice of their shifts — the specific notice period will be set by secondary legislation, but early indications point to at least 48 hours.
- Compensation for cancelled shifts. If a shift is cancelled at short notice (within the required notice period), workers will be entitled to compensation proportional to the cancelled hours. The exact rate is to be confirmed.
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 been covering the same shift pattern for 12 weeks, you may be required to offer them a permanent contract reflecting those hours.
Read our full analysis of the Employment Rights Bill 2024 and what it means for employers.
Record-Keeping Requirements
Running payroll for zero-hours workers creates specific record-keeping obligations across multiple regulations:
- HMRC payroll records — 3 years minimum. You must keep payroll records (including time tracking showing hours worked) for at least 3 years from the end of the tax year they relate to. HMRC can request these during a National Minimum Wage compliance 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 time tracking, 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 mobile app. Hours are tracked to the minute, giving you an exact record of every working period — critical for NMW compliance.
- Automatic holiday accrual at 12.07%. As hours are logged, holiday entitlement accrues automatically. Workers can see their real-time holiday balance in the app — no manual calculations, no disputes.
- Payroll export with separated line items. Export to Xero, QuickBooks, or your payroll provider with hours and holiday pay broken out on separate lines — making it easy for payroll to process correctly and produce compliant payslips.
- Complete audit trail for NMW compliance. Every clock-in, approval, and pay calculation is logged with a timestamp. If HMRC ever requests records, you have everything you need in seconds.
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.