New Rules for Calculating Holiday Leave & Pay: A Guide from Danton HR
Until recently, holiday pay for staff who work variable hours has always been calculated using an average from the last 12 weeks that they worked. However, the guidance has now changed and since April 6th 2020, holiday pay must be calculated using an average over 52 weeks. We’ve put together the following guide, which outlines everything you need to know about calculating holiday pay. Key takeaways from this article:
The holiday pay reference period is now 52 weeks, not 12
It is important to work out an employee’s weekly pay in order to correctly calculate their pay for the reference period
Almost all employees are legally entitled to 5.6 weeks paid holiday per year
An employer can include bank holidays as part of annual leave Weekly pay and legislation Even in cases where an employee is not paid weekly, it is important to work out the amount that they would be paid on a weekly basis. This is because the weekly pay figure is used to calculate holiday pay across the 52 week reference period.
Key Tips:
The concept of “weekly pay” is used in legislation because the length of a week remains the same, whereas the length of months and years are variable.
Employee Entitlements
According to the Working Time Regulations Act, 1998, almost all workers, except those who are genuinely self-employed, are legally entitled to 5.6 weeks paid holiday per year. This is the minimum statutory requirement and can include public holidays. Employees and workers who are entitled to this include:
Agency workers
Employees and workers with regular or irregular hours
Employees and workers on zero-hours contracts
An employer can choose to give an employee more holiday than the statutory entitlement. But the purpose of the statutory minimum is based on the principle that no employee should suffer financially for taking holiday.
Accruing Holiday
An employee starts to accrue holiday from their first working day and will continue to accrue holiday during their:
Probationary period
Sick leave
Maternity, paternity, adoption, or shared parental leave
The rate that an employee accrues holiday can vary depending on whether they are full-time, part- time, casual, or work irregular hours for example:
Full-time staff – accrue holiday at 2.33 days per month.
Part-time staff - will be pro-rata to their normal working hours. The minimum statutory entitlement for part-time employees is based on the time that they work. For example, a part-time employee who works 2.5 days per week is entitled to 14 days paid holiday per year or 2.8 weeks including public holidays.
Key Tips:
Part-time employees are entitled to at least 5.6 weeks paid holiday pro rata, but this will amount to fewer than 28 days.
For example, if they work 3 days a week, they must get at least 16.8 days leave a year. This is based on multiplying the number of days worked per week by 5.6.
Casual workers - Holidays may be worked out with reference to days or hours (or even minutes in some organisations) depending on the employment relationship. Casual workers may accrue only brief periods of holiday entitlement.
Irregular hours - People working irregular hours (e.g. shift workers or term-time workers) are entitled to paid time off for every hour they work. This is calculated based on the days or hours worked in an average week.
Key Tips:
Voluntary overtime which is ‘sufficiently regular and settled’ will be classed as normal remuneration, so should be considered for holiday pay calculations
How to Calculate Weekly Pay
Holiday Pay should be calculated from the last full week that is worked. This can end on or before the first day of the holiday. We’ve included the following information to help you calculate weekly pay for different working patterns:
No fixed hours (including Zero hours contract)
If the employee has no fixed or regular hours, holiday pay will be based on the average pay over the previous 52 weeks. For example, casual work on a zero-hours contract or shifts that change without a fixed pattern. If for any of the 52 weeks there was no pay at all, you can use an earlier week instead for calculating holiday. This is also the case if there have been any periods where statutory sick pay has been paid. In these instances, an alternative week should be used for calculating holiday. This is because an employee should get paid the same when they’re on holiday as they would when they’re at work.
Fixed hours
If working hours do not vary (part time or full time) holiday pay will be calculated using the usual pay rate. For example, if an employee works 37 hours every week and gets paid £400 a week, expect to pay a week’s holiday at £400.
Key Tips
You should only count back as far as needed to get 52 weeks of usual pay, but this is capped at 104 weeks.
If an employee has been employed for less than 52 weeks, you should look at how many full weeks they have been employed and calculate the average pay over this period.
If less than half a day holiday has been ‘accrued’ you must round this up to half a day.
Useful Links
The Government’s Holiday Calculator helps you calculate an employee’s holiday entitlement whether they are on fixed hours, irregular hours or a zero-hours contract.
Go to: www.gov.uk/calculate-your-holiday-entitlement for further information.
Remember: Contact us for support with any questions relating to your employee’s holiday entitlements. Our team at Danton have a full understanding of annual leave and holiday entitlements and we’re on hand to support you, whether that be guiding you through the process or helping to ease the load.