February 26, 2019

Holiday Entitlement: Q&A

Recently, we have been receiving an increasing number of queries to our advice line on issues relating to holiday entitlement. In order to offer some guidance in this complex area, we’ve compiled a list of the most common questions we receive and, importantly, the answers to them.

Q: Is an employee entitled to paid annual leave from their first day of employment?

A: Yes, although it is permissible in the first year to use an accrual system where leave is only granted as it is accrued. E.g. after two months of employment, 1/6th of a year’s entitlement may be taken. You can also allow an employee to take leave in excess of what they have accrued. If you do so it would be wise to have a contractual term in place allowing you to recoup overpayment should their employment come to an end.

Q: How much paid leave are my employees entitled to?

A: It should be noted that workers, not just employees, are entitled to paid annual leave under the Working Time Directive. Furthermore, this entitlement applies irrespective of whether the employee/worker is full time, part time or even on a zero-hours contract. How much this amounts to depends on a range of factors. These include how many days/hours per week an employee works and what the contractual arrangements are (many employees offer more than the statutory minimum entitlement).

The minimum statutory entitlement is 5.6 weeks per year. However, each ‘week’ depends on the individual circumstances. Examples:

a) Somebody who works five days per week would be entitled to 5.6 x 5 (28 days per year)

b) Somebody who works three days per week would be entitled to 5.6 x 3 (16.8 days per year)

For additional help with part-time holiday calculations, check out our popular holiday entitlement calculator blog.

Q: I want to reward full time employees with more than the minimum entitlement – is this okay?

A: Yes, however you would need to be aware of the need to treat part-time employees in the same manner. It would not be permissible to treat part-time employees less favourably than their full time equivalent. They would need to get the pro-rata equivalent of the increased leave entitlement.

Q: Do employees absent on maternity leave still accrue annual leave?

A: Yes. If an employee takes six months maternity leave, they would return with half a year’s accrued leave. You may wish to allow the employee to take some of their entitlement (which would be processed at full pay) whilst they are away on maternity leave.

Q: I have employees who work regular overtime. However, when they take a week’s leave, they are paid their normal flat rate as they are not working overtime when they are on leave. I presume this is okay?

A: Unfortunately, not. The Working Time Regulations that holiday pay derives from, is at its heart a health and safety provision. Therefore, there should not be any disincentive for staff to take their annual leave. Paying staff less when they are on holiday than when they are working could create this disincentive. The courts have therefore decided that regular overtime must be included in the annual leave pay calculation for at least four of the 5.6 weeks per year. Employers are free to apply the same calculations for the whole leave entitlement. While it might be administratively easier to do so there is no requirement.

Q: What about commission or bonuses then?

A: The same applies. These must be taken into account when calculating holiday pay for four of the 5.6 weeks per year.

Q: I pay my workers an extra amount on their hourly rate, so I don’t have to pay them when they take leave. Is this okay?

A: No. This practice is known as ‘rolled-up’ holiday pay. The courts have determined that it is unlawful, because it relies on the individual to apportion that extra sum and essentially save it for when they need to take leave. This cannot be relied upon and therefore the practice is unlawful, and it can create a disincentive to take leave.

Q: My employees work a regular shift pattern. How do I calculate their holiday pay?

A: If they work shifts (part time or full time) and have regular hours and pay, their holiday pay for a week’s leave should be the same as that regular pay. If they do not work fixed or regular hours or their pay is not always the same, pay for their holidays should be calculated on the average number of hours they worked at your average hourly rate in the previous twelve weeks. However, please note that if there are any when the employee received no pay at all, this week should not be included in the calculation and you should go back and find the next week in which there was some pay and use this.

Q: I want to enforce a Christmas shut-down and require my employees to take this as annual leave. Can I do this?

A: Yes, although it would be wise to announce this at the start of the leave year so that employees can prepare accordingly. Also, if this is going to be an annual shut-down, it would be wise to include this in the employee’s statement of main terms. The Regulations state that you need to give twice the amount of the length of leave imposed, as notice of leave. E.g. Four weeks’ notice of a requirement for employees to take two weeks’ paid leave. However, as stated best practice would be to notify staff at the start of the leave year. If not, some staff may not even have sufficient leave left to take the time off as paid leave.

Calculating Holiday Entitlement mini-guide

We hope this assists you in some of the situations we are regularly asked about. For more information, click here to download our mini-guide which covers:

  • The legislation governing holiday pay and entitlement
  • The statutory requirements for holiday entitlement – and what they mean
  • How to calculate holiday entitlement for full and part-time staff
  • How to calculate holiday entitlement for starters and leavers

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About the author

Stuart Morley

Having then been awarded a scholarship from the Bar Council, Stuart sat his Bar exams in Manchester and was called to the Bar of England and Wales in October 2002. Since then, Stuart has worked as an Employment Tribunal Advocate, handling all aspects of employment advice and litigation at hearing centres across the UK.