Holiday Entitlement & Pay Calculations: The Basics
Calculating holiday entitlement and pay can be quite complex, more so if the employee works part-time or irregular hours. It is however, essential that employers’ calculations are correct and compliant with relevant legislation and case law.
The Working Time Regulations 1998 provide that employees are entitled to a minimum of 5.6 weeks’ holiday in each full holiday year. This equates to 28 days for an employee working five days a week (or a pro-rata equivalent for part-time employees) and is inclusive of all bank/public holiday entitlements. Employers may choose to provide employees with more than 28 days’ holiday at their discretion.
Employers should communicate the dates of their statutory leave year to employees at the start of their employment. This information should be contained within an employee’s Contract of Employment and, where appropriate, within a Staff Handbook.
Calculating Holiday Entitlement
Employees who work five days per week are entitled to 28 days’ holiday in each holiday year. Where employees work reduced days or casual/irregular hours, the employer will be required to pro-rate their entitlement.
We recommend that employers use the Government Calculator in order to calculate an employee’s holiday entitlement. The calculator can be used for a full leave year, part of a leave year and even where the employee started and/or finished their employment part way through a leave year.
Calculating Holiday Pay
Irrespective of an employee’s working pattern, employers must ensure they receive the same pay while they are on holiday as they would while working. Below are some Government provided examples of how to calculate holiday pay:
Where an employee works fixed hours, their holiday pay should be calculated using their usual rate of pay.
For example, if an employee works 25 hours per week and receives £250.00 per week, they must receive £250.00 for a week’s holiday.
No Fixed Hours:
Where an employee does not have fixed/regular hours, their holiday pay should be calculated based on the average pay they have received over the previous 52 weeks.
If, during any of those 52 weeks, the employee received no pay (i.e. due to sickness absence or unpaid leave), the employer should use previous weeks during which the employee did receive pay for the purpose of calculating average pay. Employers should only go back as far as is needed to get 52 weeks’ ‘usual pay’, but must not go back further than 104 weeks.
Where an employee has not yet been employed for 52 weeks, the employer should calculate their average pay over the number of full weeks for which they have been employed.
Overtime, Commission and Bonuses
If an employee regularly receives overtime, commission or bonuses, employers must include these payments in the holiday pay the employee receives for at least four weeks of their annual holiday entitlement (or a pro rata period for part time staff), but may elect to include such payments in all of the employee’s holiday pay.
There is currently little guidance as to how regularly or ‘frequently’ overtime, commission and/or bonuses must be paid in order for them to be included within holiday pay, but, as a general principle, anything that is “normally received” should be included.