HR · 19 April 2021

The ultimate guide to holiday leave and pay in the UK

The ultimate guide to holiday leave and pay UK

Annual leave from work is a globally accepted requirement driven by human rights in the workplace. In line with that, every employee in the United Kingdom is entitled to take annual leave and be paid their salary or wages over that time.

Regardless of people being employed by an agency, working irregular hours, on zero-hours contracts or on a part-time basis.

As an employer, are you aware of how much leave your employees should get? Do you know how overtime affects annual leave, if at all?

Do your employees ask to be paid out their leave pay in lieu of foregoing the annual leave? In this ultimate guide to holiday leave and pay, we answer these questions and address holiday pay rates, qualifying length of employment, monthly accruing, minimums and maximums.

What is the minimum holiday entitlement for staff?

Most workers are entitled to 5.6 weeks or 28 days of paid holiday a year in the UK. The definition of a worker is:

A person is generally classed as a ‘worker’ if:

  • they have a contract or other binding arrangement to execute work or services personally for a reward. The contract does not have to be written in order to be recognised in the eyes of the law as a contact
  • the aforementioned reward is in the form of money or a benefit in kind, such as the promise of a contract or work in the future
  • they have a very limited proxy or a very limited right to nominate someone else to execute the work on their behalf, that is, subcontract the work
  • they are required to attend work at the scheduled times even if they have no desire to do so
  • their employer is obliged to have executable work for them to do for the entire duration of the signed contract or the entire duration of the alternative arrangement
  • the work that they are executing is not work as part of their own limited company,   in an arrangement where the customer or client is the ‘employer’ actually
Back to the 28 days, this may seem like a lot to an SMME business owner. However, dial down your reaction as you can include bank holidays in the 28 days. There are eight bank holidays in England and Wales. If you require employees to take leave on these days, they will be obliged to.

Annual leave minus bank holidays leave them with 20 days (or four weeks) per year. Note: it is not obligatory that your employees take bank holidays as paid leave. If you allow them to have bank holidays and full minimum annual leave, they are entitled to the full 28 days.

Employers are quite within their rights to stipulate when staff must take their annual leave, which can be confirmed on the gov.uk site. Bank holidays are one of those examples. It would be advisable to confirm this upfront in the employment contract to avoid disputes further down the road.

Many organisations choose to close between Christmas and New Year, and that is not necessarily for religious reasons but due to their customers and suppliers being closed or halting trading. This would then make sense to make that a required holiday period for employees. In addition to stipulating when employees can take leave, employers can also stipulate and restrict when staff can take their paid annual leave. Companies prudently use this tool to keep appropriate levels of headcount on-site during seasonally busy times.

Smaller companies are cautioned to manage these tools carefully so as not to ‘run out of days’ that the employees can each have a turn to go on leave. Employers may not refuse to facilitate a solution for each employee to take their annual paid leave at all.

How much holiday must an employee take?

When an employee is planning when to use their leave and how much of their leave to use, they are required to give twice as much notice as the leave period. Thus, it is fully permissible for an employee to give a 2-day notice for a one day leave request unless their employment contract states another requirement. In this instance, the government recognises the right of the employer to request longer notice periods but ‘within reason’ will always be the overriding spirit. The nature of some industries do, by default, require longer notice periods, especially when specialists are involved and shift work.

Part of the employees planning will be deciding what portion of their leave to use, and Gov.uk has created a very helpful holiday entitlement calculator. Employers and employees can utilise this to work out the total amount of days of holiday and the related value to which every employee is entitled to.

Whilst the legal minimum is 28 days (or 20 + 8 bank holidays), the employer may award more annual leave days, which will be captured in the employment contract. If you are a part-time employee, then your annual leave is calculated pro-rata.

If you are self-employed, you are your own boss, and therefore you can decide how much holiday you deserve and how much holiday leave you should earn. Business owners tend to have fewer holidays than the employees, ironically.

On the other side of the coin, unfortunately, some employers are manipulating certain types of contracts issued for casual workers. These manipulated contracts attempt to classify workers on very low wages as self-employed. Due to this, the employers attempt to deny them paid leave, stating it is built in the total being paid across to them. If suspicion of such a contract exists, a union rep or a Citizens Advice Bureau can address the situation.

Once the quantity of leave available is ascertained, the employee can nominate how many days to take off. Just as employers are permitted to restrict when leave may occur, an employer may restrict the length of time taken off by employees in one go. This may be predefined in your employment contract or might be flexible subject to a discussion with the direct manager. The discussion would be around organisational needs. The more specialised your job and the more niche your industry, the tougher it might be to take very big batches of leave days.

The employer will need to have their requirement satisfied that the employee’s role will be adequately covered with no service failures for the requested period of leave.

If a long break is granted, it is very beneficial for employees to use to rejuvenate and avoid burnout, especially if in a highly pressurised occupation. It is always good to remind employees that whilst a long leave is alluring, using up all of their annual leave days in one holiday event has a disadvantage. They will need to work for 11 months solid with no respite, and this might prove to be very monotonous and, overall, tire them out more.

How is holiday pay calculated?

Whilst there are many employees who get more than 5.6 weeks paid holiday a year, the vast majority get the 5.6 weeks, and with bank holidays deducted, this amounts to 20 days. Employers and employees can use the very useful holiday calculator from Gov.uk to calculate the amount of annual paid leave someone should get.

The starting point is the pay-per-week figure, which is worked out based on the kind of hours worked by an employee and how the employee is paid for those hours worked. This calculation covers full-time, part-time, term-time and casual workers.

The Gov.uk website also supplies this helpful table as an overview:

Working patternHow a week’s pay is calculated
Fixed hours and fixed pay (full- or part-time)A worker’s pay for a week
Shift work with fixed hours (full- or part-time)The average number of weekly fixed hours a worker has worked in the previous 52 weeks, at their average hourly rate
No fixed hours (casual work, including zero-hours contracts)A worker’s average pay from the previous 52 weeks (only counting weeks in which they were paid)
Credit: www.gov.uk

To reach the value of the average hourly rate, look back over the past 52 weeks and count only the hours that were worked and the related amount that was paid for those hours. Take the average from those figures.

The term ‘week’ is recognised as running from Sunday to Saturday. There are instances where a different interpretation of the week is used, for example, Mon to Sun, if that’s how an employee’s pay is calculated. Wherever possible, stick to the standard terminology.

Part-time employees – With part-time employees, it can get tricky trying to find the average as in some weeks no pay is paid due to no work being done. Employers can shift back by up to 104 weeks in order to find 52 weeks of paid weeks. The employer can then calculate the average achieved over those 52 weeks. Thus the rate is based on 52 weeks in which pay was paid.

If 52 weeks of paid weeks were not possible to find even when looking an additional 104 weeks further back, the employer is obliged to use the average pay rate for the full weeks the employee has worked.

Monthly employees – With your full time, monthly paid employees, the calculation source figures are easier to obtain.

  1. Work out average hourly pay to the employee for the previous month by dividing the month’s pay by the month’s total hours worked = average hourly pay.
  2. Take the average hourly pay from the above calculation and multiply it by the number of hours worked in a week = weekly pay.
  3. Calculate the weekly pay answer for each of the past 52 weeks.  Use these figures to work out an average week’s pay.

Is Holiday pay the same rate as normal pay?

Holiday pay is generally the same rate as normal pay for employees. For example, employees who are paid monthly will have their annual salary figure divided into 12 equal payments, and when they take a holiday, it has no effect on their payslip.

The UK Courts have determined that guaranteed and non-guaranteed overtime should be considered when calculating holiday pay.

The Court of Appeal in Northern Ireland determined that if voluntary overtime constitutes part of an employee’s ‘normal working week’, this may need to be considered when calculating holiday pay.

Special payments apply when employees have varying pay rates, e.g. piece work. Then the holiday pay will be the average rate paid for work over the 12 weeks before the holiday.

If work did not occur in one week, it should be replaced by the last week in which work and pay occurred until you have twelve weeks with work and payments.

Rolled-up holiday pay is unlawful as you may not withhold payment to employees on holiday and replace it with holiday pay “rolled up” into the hourly rate of pay.

The Employment Appeal Tribunal (EAT) court ruling (one of many) stipulates that holiday pay should reflect non-guaranteed overtime. Suppose overtime is worked when employers ask employees to do so (non-guaranteed overtime). In that case, these overtime payment values must be calculated into their holiday pay as if there’s a ‘settled pattern of work’.  The Employment Appeal Tribunal established a ruling that holiday pay calculations are much wider than basic pay.

Unfortunately, overtime and holiday entitlement has many variables due to the variable scenarios. Karen Bexley, head of employment law at MLP Law, indicated that in cases where there is no settled pattern of work, or there are payment variables such as commission or overtime, it would appear that the courts favour a standard 12-week reference period to be used for the calculations (see section 221 of the Employment Rights Act 1996).

How long do you need to work to get holiday pay?

Now that the rates are sorted out, now you need to know how to earn time off.

An employee’s annual leave starts being calculated from day 1 of their job. The employer is obliged to inform all employees of the dates of their statutory “leave year” in their employment contract.

The leave year will either be the company’s leave year from, e.g. 01 Jan to 31 Dec or connected to the employee’s contract years, e.g. from 1 October to 30 September.

Note: Leave years and holiday entitlement is not affected in any form or manner by maternity, paternity or adoption leave. Annual leave is still accrued over these periods.

If an employee commences work part-way through a company “leave year”, only a pro-rata portion of their total annual leave may be used in the current leave year.

How many holidays do you accrue per month?

Employers, in the vast majority, use an accrual system for calculating annual paid leave for employees. Basically, a worker gets one-twelfth of their leave in each month accrued to their holiday leave balance.

The employment contract stipulates how many annual days’ leave an employee can carry over into the next leave year. As an example, if an employee gets 28 days’ annual leave, employers usually allow a maximum of 8 days to be carried over to the next leave year.

Untaken leave could be carried over for the next two years if they were hindered from taking leave due to the COVID19 pandemic.

If a worker was able to take leave, the standard rules for carrying over leave still apply.

 

 

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