Calculating holiday entitlement for variable-hours employees
Calculating holiday entitlement for workers with regular hours is relatively straight-forward. But what happens when you have employees who work different hours every day, week, or month? How do you calculate holiday entitlement for irregular hours?
We’ve already covered how to calculate holiday entitlement for part-time workers, furloughed workers, casual workers, and how to calculate holiday pay for employees on a range of contracts. This article gets into the detail of calculating pay for your staff who are on irregular or variable-hours contracts (formerly referred to as zero-hours contracts), with an example.
What is a variable-hour employee?
An irregular-hours or variable-hours employee simply means the employee does not have set hours they work every day or week. Their hours change, so they won’t have a regular shift pattern and may do a different number of hours per shift (unlike shift workers, who will do a set amount of time per shift). Therefore, usually this employee is paid by the hour.
It’s worth noting that unless they regularly work hours equivalent to full-time hours, variable hours employees count as part-time for employment law purposes. They are therefore covered by legislation protecting part-time workers from being treated less favourably than full time workers. You need to be mindful of this when dealing with their entitlements so that you don’t accidentally discriminate against these employees.
It’s also important not to confuse irregular-hour employees with zero-hour workers. Variable hour workers differ in that they are usually permanent employees with different working hours every week, and therefore there is mutuality of obligation between the employer and employee. For example, there might be a set minimum number of hours the irregular-hours employee will work a week / month outlined in the employment contract.
What holiday entitlement is the variable-hours employee entitled to?
It depends on the total number of days of annual leave entitlement your full-time employees have.
The statutory minimum holiday entitlement for full-time employees is 28 days including any bank holidays given as days off, or 5.6 weeks a year. Your company may provide this or contractually give more holiday. You’ll need to use the total holiday entitlement you give to your full-time employees and apply this pro rata to your employees with irregular or variable hours contracts.
So, if normal holiday entitlement is 28 days inclusive of bank holidays, then your variable-hours employee will be entitled to 28 days, pro rata, depending on the number of hours worked. This is what you’ll need to communicate to your employees. Note that you cannot specify a particular number of days as you don’t know how many hours they will be working each week/month etc.
Their holiday pay is then calculated using the average pay for the number of hours they’ve worked in the previous 52 weeks, or the period of time they’ve been working, if less than 52 weeks. As the average number of hours needs to be calculated each time a variable-hours employee books holiday, it can be a bit confusing, but the below explanation will help you work it out.
How to calculate holiday entitlement for variable-hours contracts
For a variable-hours employee, you would need to:
- Take the daily number of hours for a full-time employee eg. 8 hours, then multiply by the total number of holiday days in a year, including the bank holidays (whether you work on them or not). This will give you the number of holiday hours for a full-time employee.
28 (days holiday) x 8 (hours per day) = 224 hours for full time holiday entitlement per complete holiday year
33 (25 days + 8 bank holidays) x 7.5 (hours per day) = 247.5 hours for full time holiday entitlement per complete holiday year
If your calculation for your variable-hours employee works out to more than your full-time holiday hours per full holiday year and your variable hours employee has not worked more hours than your full-time employees, then your calculation is incorrect.
- You then need to work out the average number of hours that the variable-hours employee has worked over the last 52 weeks (or over the number of weeks worked if less than 52).
If the employee has worked for just 5 weeks, and has worked 12 hours in week 1, 23 hours in week 2, 40 hours in week 3, 16 hours in week 4, and 31 hours in week 5, add up the hours to find out the hours worked in that period.
Therefore, 12+23+40+16+31=122 hours worked.
Then divide 122 by 5 (the number of weeks worked) = 24.4 rounded up to 24.5 average hours worked by employee per week.
So, if this person requests holiday for a week in week 6, they will get one week’s pay at 24.5 hours, being the average number of hours that they have worked over the last 5 weeks and the hourly rate as being the average hourly pay over the last 5 weeks.
However, this amount of 24.5 hours per week is likely to change if working more or less average hours over a longer period of time. The calculation will be the same, just multiplied by the average number of hours worked.
Easy calculation in summary
Holiday entitlement at time of taking the holiday = Average number of hours worked in previous 52 weeks, or the number of weeks worked, if less than 52.
Holiday pay must be an average of the pay for the last 52 weeks, or the number of weeks worked, if less than 52.