When you employ staff you need to be aware of your responsibility to them. This includes making sure they have acceptable working conditions, fair treatment and at least the minimum benefits of employment.
One benefit is holiday pay, which this blog will cover in detail.
How much holiday is an employee entitled to?
Legally, almost all employees are entitled to 5.6 weeks paid holiday per year. For employees who work five day weeks, this will be calculated at twenty-eight days paid holiday per year. If an employee works fewer days a week then you would just multiply the number of days per week by 5.6 to get the annual holiday entitlement.
If an employee works irregular hours, then the holiday entitlement would be more difficult to calculate. Advice on how to do so will be covered later in the blog.
Limits on entitlement
The entitlement is limited to twenty-eight days a year, therefore an employee who works six days a week will have twenty-eight days holiday entitlement instead of thirty-four days.
There is no requirement for employers to give employees time off for bank holidays. However, without incentive, it may hurt staff morale if you don’t. It is common practice to give employees these days off and subtract them from the total holiday entitlement. This means your employee would have eight bank holiday days and twenty regular holiday days per year at the minimum entitlement.
Calculating holiday pay
For each week of holiday, an employee takes, they are entitled to be paid their regular amount for that week. For employees with fixed hours/pay, this is easy to calculate.
For employees with irregular hours, you would calculate the average pay over the last twelve weeks and use this figure. If there was a week that was unpaid in the twelve you use to calculate the average, ignore it and use an additional earlier paid week until you have twelve paid weeks to calculate your average.
Holiday pay should be paid when an employee uses a holiday, it should not be added to an employee’s regular wages as an alternative to taking the holiday.
Calculating holiday entitlement for a new employee
An employee will build up their annual holiday entitlement from the moment they begin working. There are two methods of calculating an employee’s holiday entitlement.
Using the ‘leave year’ method
The ‘leave year’ method calculates holiday entitlement by setting a date as the end of the year in terms of holiday entitlement. This means that all holiday for a year should be taken by this date and the next year’s holiday entitlement begins.
Employers should have this date set out in the employment contract otherwise it will be the same date as the employee’s first day of work. Holiday entitlement is not affected by maternity, paternity or adoption leave.
If the employer sets a date and the employee begins work part-way through the ‘leave year’ then the holiday will be calculated to the portion of the ‘leave year’ the employee would work. For example, is the employee starts halfway through the leave year then they would be entitled to fourteen days paid holiday for the period up to the ‘leave year’s’ end.
Using the accrual system
The accrual system can be used by employers to calculate the first year of holiday entitlement for an employee. This method involves an employee building up one-twelfth of their annual holiday entitlement per month.
Carrying over leave
An employee can carry over a maximum of eight days out of the twenty-eight days holiday into the following year. If an employee cannot use all of their holidays due to illness then they could carry up to twenty days holiday depending on how many they did not get to use.
Taking holiday
An employee must give their employer a period of notice of at least twice the duration of a holiday when using up their holiday unless mentioned otherwise in the employment contract. An employer can refuse, however, they must give a notice of at least the holiday’s duration to inform the employee.
Please bear in mind this doesn’t mean that employers can refuse to let employees take holiday indefinitely!
Employers are able to restrict when holidays are taken, for example during busy periods. Employers can also tell their staff to take holidays, for example, bank holidays. While this may be covered in the employment contract, a notice of at least double the duration of the holiday must be given to the employee.
If an employee is entitled to holidays for part of a workday then it is up to the employer to decide how this will be taken.
Calculating the holiday for a leaving employee
During their notice period, an employee can use up the rest of their holiday entitlement. The entitlement is calculated based on how much of the year has passed similarly to a starter’s holiday entitlement for the first year.
If an employee takes additional leave than what they are entitled to, the employer must not take this from their final wage without a written agreement.
If the employee does not use up the last of their holiday entitlement upon leaving, then the employer must add this to their final wage. This is the only case where holiday pay can be added to regular wages instead of the holiday being taken.
Additional holiday
Some employers may decide to give their employees additional days holiday to the entitlement amount. When this happens the employer has a lot more control over the additional holiday. Often this will include granting additional holiday days for additional year’s service to the employer.
An employer may also allow their employees to carry any amount of the additional pay over to the following year.
When an employees leaves and does not use up the additional leave, the employer and employee can agree to separate arrangements on how to handle it.
The gov.uk website has a useful holiday pay entitlement calculator to help with determining irregular hour pay amounts as well as an entitlement for first year and final year employees.
If you would like any additional advice or information regarding the above, or with payroll in general, then please do not hesitate to contact us.
