Holiday Entitlement and Pay Calculations

Holiday Entitlement and Pay Calculations: The Basics

Calculating holiday entitlement and pay can be quite complex, more so if the worker works part-time or irregular hours. It is essential that holiday calculations, whether in respect of entitlement or pay, are correct and compliant with relevant legislation and case law.

The Working Time Regulations 1998 provide that workers (this includes employees) are entitled to a minimum of 5.6 weeks’ holiday in each full holiday year. This equates to 28 days for a worker working five days a week (or a pro-rata equivalent for part-time workers). It is inclusive of all bank and/or public holiday entitlements. Employers may choose to provide workers with more than 28 days’ holiday at their discretion.

Employers should communicate the dates of their statutory leave year to workers at the start of their employment. This information should be contained within an worker’s Contract of Employment and, where appropriate, within an Employee Handbook.

Calculating Holiday Entitlement

By law, workers who work five days per week are entitled to the statutory 28 days’ holiday in each holiday year (or, the full holiday entitlement provided by an employer if in excess of 28 days).

We recommend that employers use the Government Calculator* in order to calculate a worker’s holiday entitlement. The calculator is easy to use and can be used for a full leave year, part of a leave year and even where the worker started and/or finished their employment part way through a leave year.

*please note that the Government Calculator can only be used to calculate holiday entitlement for workers who are in receipt of 5.6 week’s (28 days) holiday, pro-rated for part time workers.

The effect of a UK Supreme Court ruling on Holiday Pay:

In recent news, a UK Supreme Court decision concerning the case Harpur Trust v Ms Brazel confirmed how holiday should be calculated for:

(a)          workers who work term time hours; or

(b)          workers who have no guarantee of hours of work (zero hours), but are continuously employed throughout the year (rather than on separate ‘assignments’).

Whilst, for many employers, it makes perfect sense where a worker is working a variable number of hours to calculate holiday entitlement based on the amount of work they actually perform, thereby reducing their holiday entitlement, the Working Time Regulations 1998 do not make provision for pro-rating holiday for term time workers or zero hours workers.

Term time:

Where a worker works 39 weeks a year and does not take holiday leave during the time when they are working, employers must add 5.6 weeks (28 days) on to their pay. In this scenario, the term time worker would receive an average salary based on a total of 44.6 weeks, and not 39 weeks (39 weeks plus 5.6 weeks).

Please note that this does not change for other part-time workers who, for example, work three days per week, all year round. They would still receive less holiday entitlement than a full time worker and therefore less pay than their full time colleagues as their holiday entitlement would be prorated based on their weekly hours of work.

Zero hours:

Zero hours workers who are continuously employed but who have no guarantee of hours of work and who don’t have to accept work offered, are entitled to 5.6 weeks’ (28 days) paid holiday in each full holiday year – the same as a full-time worker. If however, a zero hours worker is employed for a fixed period of less than one year (ie: three months), then their holiday entitlement should be pro-rated to take account of the fact that they commenced employment and/or finished employment part-way through the relevant holiday year.

By way of example, if a zero hours worker is employed on a fixed term basis for a period of three months, their total holiday allowance would be:

5.6 weeks DIVIDED BY 12 months = 0.47 weeks

0.47 weeks MULTIPLIED BY 3 months = 1.4 weeks

Calculating Holiday Pay

Irrespective of the working pattern, workers are entitled to receive the same pay while they are on holiday as they would receive while working. Below are some Government-provided examples of how to calculate holiday pay:

Fixed Hours:

Where worker works fixed hours, their holiday pay should be calculated using their usual rate of pay.

For example, if a worker works 37 hours per week and receives £400.00 per week, they must receive £400.00 for a week’s holiday.

No Fixed Hours:

Where worker does not have fixed/regular hours (for example, if a worker does casual work on a zero-hours contract or shifts that change without a fixed pattern), 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 worker received little pay or no pay at all (i.e. due to sickness absence or unpaid leave), the employer should use previous weeks during which the worker 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’, and must not go back further than 104 weeks.

Where a worker 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.

Following the ruling by the UK Supreme Court (detailed above), it has been confirmed that the 12.07% holiday pay calculation method is incorrect for workers with irregular working patterns.

Overtime, Commission and Bonuses

If a worker regularly receives overtime, commission or bonus payments, employers must include these payments in the holiday pay the worker receives for the four statutory weeks of their annual holiday entitlement (or a pro rata period for part time staff) and are not required to for the remaining 1.6 weeks. Where an employer awards additional holiday in excess of the statutory entitlement, they may decide to include such payments in the total holiday entitlement.

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.

We are here to help

For more information regarding holiday entitlement and pay calculations, please get in touch. Do you need support or advice on employment law? We are here to help. GatekeeperHR is a fixed cost, employment law and HR retainer service which provides businesses with access to a dedicated team of experienced lawyers and HR professionals who you can speak to, or meet face-to-face, at any time. The service includes a full HR compliance audit, access to an online portal full of valuable employment law and HR resources and an annual training session on topics of your choosing. To find out more about GatekeeperHR, please get in touch with Employment Solicitor Elaine Abbs or call 01732 441125. You can also visit: www.gatekeeperhr.co.uk or contact us.