Calculating Redundancy Pay for Zero-Hours Contracts
A Practical Guide for UK Employers from Clear Path Solutions
Zero-hours contracts have become a fixture across many UK industries—from retail and hospitality to health and social care. These contracts offer flexibility for both businesses and workers, but they also bring legal grey areas, particularly when it comes to redundancy pay.
At Clear Path Solutions, we work with UK employers every day to ensure they remain compliant with employment law, no matter how complex the contract type.
If you’re considering making redundancies involving zero-hours staff, this guide will help you understand your obligations—so you can handle the process fairly, lawfully, and with confidence.
What Is a Zero-Hours Contract?
A zero-hours contract is a type of employment agreement where there’s no guaranteed minimum number of working hours. Employees or workers are only paid for the hours they actually work, and they are not obliged to accept any shifts offered.
Despite the casual nature of these arrangements, individuals on zero-hours contracts may still qualify as employees under UK employment law—and this distinction is crucial when determining whether redundancy pay applies.
Can Zero-Hours Employees Receive Redundancy Pay?
Yes—but only if certain legal criteria are met.
Under the Employment Rights Act 1996, statutory redundancy pay is reserved for employees. That means the first step is to confirm whether the individual qualifies as an employee (rather than a worker or contractor).
To be eligible for redundancy pay, a zero-hours individual must:
- Be legally classified as an employee
- Have at least two years of continuous service
- Be made redundant (not dismissed for misconduct or performance)
- Be aged 18 or over (with higher entitlements as age increases)
If your zero-hours team members have been working regularly over a long period, they may very well be entitled to redundancy pay—despite not having fixed hours.
Determining Employee Status on Zero-Hours Contracts
At Clear Path, we regularly help clients navigate the thorny question of employment status. Here’s what to look for:
A zero-hours worker may be classed as an employee if:
- There’s a mutual obligation (you offer work, and they’re expected to accept)
- They are integrated into your business (company email, staff meetings, training, etc.)
- You exercise control over how, when, and where the work is performed
Even if the written contract says “zero-hours,” the actual working relationship could show signs of permanent employment. UK employment tribunals often rely on work patterns and the conduct of both parties—not just contract wording.
If you’re unsure about someone’s employment status, get in touch with Clear Path Solutions. We’ll assess the situation and provide you with a written determination.
How Statutory Redundancy Pay Works (UK Rules)
If a zero-hours employee meets the eligibility criteria, their redundancy pay is calculated using:
- Length of continuous service
- Employee’s age
- Average weekly pay (based on the last 12 paid weeks)
UK Statutory Redundancy Pay Formula (2024/25):
- 0.5 week’s pay for each full year worked under age 22
- 1 week’s pay for each full year aged 22–40
- 1.5 weeks’ pay for each full year aged 41 and over
The government caps weekly pay at £643 (as of April 2024), with a maximum of 20 years of service considered.
How to Calculate Weekly Pay for Zero-Hours Workers
This is where things can get tricky for employers.
Because zero-hours earnings fluctuate, weekly pay is calculated as the average of the last 12 paid weeks. If a week had no earnings (i.e. no shifts worked), skip it and go further back until you’ve found 12 weeks with pay.
Example:
Emma, aged 35, worked under a zero-hours contract for 4 continuous years. Her last 12 paid weeks looked like this:
£200, £250, £300, £150, £220, £240, £210, £260, £230, £180, £200, £270
Step 1: Total pay = £2,710
Step 2: Average weekly pay = £2,710 ÷ 12 = £225.83
Step 3: Redundancy formula =
4 years × 1 week × £225.83 = £903.32
So Emma would be entitled to £903.32 in statutory redundancy pay.
Need help working this out for your staff? Contact Clear Path UK for an accurate redundancy calculator and tailored guidance.
Seasonal and Irregular Work: What to Do
If a zero-hours employee didn’t work consistently each week (such as during seasonal peaks), you still apply the 12 paid week average—regardless of how far back those weeks fall.
The law recognises that gaps are common in casual work. As long as 12 weeks of paid work can be identified, you can calculate an accurate average.
Continuous Service: How It Works for Zero-Hours Staff
Even under zero-hours arrangements, continuous service can accrue if:
- The contract remains in force between assignments
- There’s an expectation of future work
- The employee remains on your books or rota
Occasional breaks in work don’t necessarily break continuity. However, if there’s a gap of several months with no work and no ongoing contract, service may be interrupted.
This can have major implications for redundancy entitlements, so it’s worth getting a professional review of your zero-hours arrangements.
Notice Periods and Other Final Pay Considerations
If your zero-hours employee is eligible for redundancy pay, they’re also likely entitled to statutory notice, based on length of service:
- 1 week’s notice after 1 month
- 1 week for every year of service, up to a maximum of 12 weeks
They may also be entitled to:
- Holiday pay for any accrued but unused annual leave
- P45 and final payslip
All payments must be made promptly to avoid post-termination disputes or tribunal claims.
Legal Obligations for Employers
When making a zero-hours employee redundant, UK employers must:
- Confirm the individual’s employment status
- Follow a fair redundancy process, including consultation and selection criteria
- Provide a written redundancy notice and pay statement
- Ensure all final payments are made in full
At Clear Path UK, we help businesses ensure their redundancy process is not only legally compliant—but also respectful and fair. That’s how we help you avoid the cost and stress of tribunal claims.
Common Misconceptions We Hear from Employers
- Zero-hours workers don’t qualify for redundancy pay.”
False. Many are legally considered employees and have full rights. - “You only use the most recent week’s pay to calculate redundancy.”
Wrong. UK law requires averaging the last 12 paid weeks. - “Redundancy pay is at the employer’s discretion.”
Not for statutory redundancy. If criteria are met, it’s a legal obligation.
Final Thoughts: Protect Your Business with Clear Path
Redundancy decisions involving zero-hours employees are often misunderstood—but they’re no less important. Getting it right means understanding the employment status, calculating entitlements correctly, and following the proper legal procedures.
At Clear Path Solutions, we support UK employers with every aspect of the redundancy process, from employee classification and notice pay to documentation and compliance. If you’re unsure about how to handle zero-hours redundancies, we’re just a call or click away.
👉 Need support now? Speak to a UK redundancy expert at Clear Path Solutions
