We frequently get asked about holiday calculations, especially calculating holiday entitlements for workers whose hours aren’t “run of the mill” such as employees working on zero hours contracts, term-time workers and casual workers.
If you remember just one thing, it should be that all workers, whether full-time, part-time or casual, must receive holiday pay reflecting the true earnings they would have received if they had been at work rather than on leave.
The Working Time Regulations 1998, obliges employers to grant all workers a statutory minimum of 5.6 weeks holiday per year for full-time workers, and a pro-rata equivalent for part-time or casual workers. There is no provision allowing employers to opt out of this duty.
Just a word of caution, if you employ part-year workers such as, but not limited to, term-time workers, the pro-rata provisions are not specific to these workers. Instead, when calculating their entitlement, workers who have employment contracts for a full year are entitled to 5.6 weeks of holiday and pay, regardless of how much of the year they actually work(ed).
The risks of getting holiday calculations wrong
Denying any worker, the right to be paid the equivalent of 5.6 weeks holiday, or falsely claiming the worker is self-employed, may lead to a tribunal claim under the Working Time Regulations. There is no minimum length of service required to bring this type of claim to tribunal, however, a claim must be brought within three months of the date the worker alleges that they were denied the right to holiday.
Further, a worker denied statutory holiday pay can claim under the Employment Rights Act 1996 that the employer made an unlawful deduction from their wages.
Under the ERA, there is also a provision allowing an individual to bring a claim for a series of unlawful deductions from pay. This means that a worker could bring a single claim for unpaid holiday pay over several successive years (arguing that the non-payments or underpayments form part of a series of unlawful deductions from pay).
The claim must be brought within three months of the last in the series of deductions and if successful, could lead to the employer being ordered to pay the worker holiday pay backdated over several years.
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Calculating what to pay
Since the Supreme Court decision in Harpur Trust v Brazel in July 2022 the subject of holiday pay has never been hotter.
Previously, a common approach to calculating holiday pay was to use the percentage method at 12.07% of hours worked to calculate annual leave for workers with irregular hours as recommended by ACAS. However, in this ruling, the Supreme Court has confirmed this calculation to be wrong and that in fact the correct way to calculate holiday is already established in law.
If you only have full-time or part-time workers with regular hours and a fixed salary you don’t need to take any action. If your workers have irregular work patterns and variable pay, however, then read on.
Based on the fluctuating nature of the work, it is often easier to calculate holiday pay in hours. This must reflect the normal hourly rate of pay and must be itemised separately on payslips.
The legislation is clear in that it provides a week’s pay should be calculated with reference to average weekly pay of the previous 52 weeks, but discounting any weeks no pay (other than statutory pay) was received.
Should your HRIS or payroll system not support the automatic calculation of non standard workers holiday, it is advisable to keep a rolling spreadsheet to allow for easier reporting throughout the year.
What constitutes pay is another area of complexity for employers trying to calculate employees’ entitlements. The legislation and case law here is perhaps less clear. Whilst discretionary bonuses are not included, non-contractual overtime should be where it is regular. The definition of regular has been left to the employer to define and justify if required, meaning many are wary and left wondering if they are calculating holiday pay correctly.
If any of your workers fall into these categories where average holiday pay is applicable, then downloading our free guide will give you some helpful pointers to ensuring you are meeting your legal requirements.
Termination of contract
Any accrued but unused holiday upon the termination of the contract must be paid to the worker and must be itemised separately on their final payslip.
If you need help introducing or developing appropriate policies and guidelines around holiday pay for your workforce, or wish to introduce training for those responsible for such calculations, please get in touch and we will be happy to help you.
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MAD-HR Average Holiday Employers' Guide
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