How Do I Calculate Employee Holiday Entitlement?

how to calculate employee holiday entitlement
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On the surface, calculating an employee’s holiday allowance seems easy enough. UK law stipulates that an employee should receive at least a certain number of days per year, so as long as they’re getting the right number of days everything should be fine, right?

Well sure, that’s fine for employees working a standard 5-day, 35-40 hour week – but what if your employee works part time, or a mixture of short and long shifts? What if they are employed under a zero-hours contract, with no set hours? And how do you calculate their remaining days accrued if they leave halfway through the year?

Not to worry! Empowered by Cloud are here to break down holiday allowances and accrual so that you can rest easy knowing your employees are getting what they’re entitled to.

What is statutory holiday entitlement in the UK?

Statutory holiday entitlement is an entitlement prescribed for in law (a statute), meaning that an employee is entitled to a certain number of paid holiday days from work each year – known as annual leave.

In the UK, employees are entitled to 5.6 weeks paid leave, or 28 days (whichever is lower). For an employee working standard shifts (i.e., shifts of the same length each day) over 5 days a week, then 5.6 weeks = 28 days.

An employee working more than 5 days a week will never be entitled to more than 28 days statutory leave, as the entitlement is the lower of 5.6 weeks or 28 days. However, while this is the minimum amount an employee must receive, many employment contracts entitled workers to additional paid holiday beyond the statutory allowance.

Almost all workers are entitled to this allowance, including agency workers, workers with irregular hours, and those on zero-hours contracts. Where things become difficult is making sure that workers in non-standard working patterns are receiving their proper statutory entitlement.

Does the statutory 28 days include bank holidays?

If the business is closed on bank holidays, employers are allowed to include these in the 28 days and require employees to use an annual leave day to cover them. This is because bank holidays would still count as paid leave, so the individual is not receiving less than their minimum allowance. It is instead a restriction on how some of that allowance is to be used.

If the business is not closed on bank holidays, then the 28 days allowance will not include them as mandatory, and it will be down to the employee to decide if they want to use an annual leave day to cover them or not.

How do I calculate annual leave entitlement for a part time worker?

If your employee works part time, how you calculate their leave will depend on whether they work shifts of standard length and over how many days.

The good news is, if your part time employee works the same 5-day week but with shorter shifts, then there is no calculation needed. They are entitled to the same 28 days as full-time employees because they work the same number of days.

Many employers falsely believe that all part time employees should have a lower annual leave entitlement just because they work fewer hours. This is incorrect, and employers calculating their part time employees’ leave in this way could be storing up trouble for themselves further down the line.

Where the employee works less than five days a week, but still has fixed days and regular shifts, you can work out their leave entitled by multiplying the number of days worked per week by 5.6. So if they work three days per week: 3 x 5.6 = 16.8 days. Their entitlement is therefore 16.8 days per year.

Do note that while entitlement can be rounded up to the next whole or half day it should never be rounded down, as this would mean the employee was receiving less than their statutory amount.

How do I calculate annual leave entitlement for a worker with varying shifts?

If you have an employee who works a set number of hours per week, over a set number of days, but works varying hours on each of those days, then HMRC’s guidance is to calculate their leave entitlement in hours based on the average length of a working day.

For example, you have an employee who works 25 hours per week over 4 days. To find their entitlement in days, we carry out the same calculation: 4 x 5.6 = 22.4 days. However, this employee doesn’t work shifts of the same length each day. On Monday and Tuesday, they work 7.5 hours, but 5 hours on Thursday and Friday – meaning they could essentially receive more or less paid leave per year depending on which days they chose to take it on.

To work around this, we first find the average length of the employee’s shift. In this case, 25 hours divided by 4 days, which equals 6.25 hours. This is an average workday, and so the employee should receive 22.4 of these average days.

22.4 x 6.25 = 140 hours, meaning the employee’s annual leave entitlement for the year is 140 hours. If they took a leave day on a Monday, we would deduct 7.5 hours from this total, or if they took leave on a Friday we would deduct 5 hours.

This method also applies where the employee is contracted to a set number of hours and days per week but does not have a set shift pattern, i.e. some Mondays they do 7.5 hours but some they do 5, or the days that they work each week change. What matters is that the number of days and number of hours are set by the employment contract.

How do I calculate annual leave entitlement for a worker on a zero-hours contract?

Workers employed under a zero-hours contract have a lot of flexibility in how they work, and are not guaranteed any set hours each week, but they are still entitled to the statutory 5.6 weeks leave. This can make it challenging to calculate their actual leave entitlement, as you may not know how many hours they are likely to work across the year.

Instead of being automatically entitled to a certain number of days/hours based on their contract, zero-hours workers accrue their holiday allowance by carrying out work for their employer. Each hour that they work entitles them to roughly 7 minutes of annual leave (7.242 minutes to be exact).

This is because 5.6 weeks is 12.07% of a 52-week year, and 7.242 minutes is 12.07% of an hour. Zero-hours workers should receive the same 12.07% of the time they work as paid leave. You can therefore multiply the total number of hours your zero-hours employee has worked for you by 0.1207 to arrive at their accrued holiday amount.

For example, your employee has worked 133 hours. 133 x 0.1207 = 16.05 hours. They would then be entitled to 16.05 hours of paid leave.

Many employers allow zero-hours employees to take annual leave days in anticipation of future accrual, rather than strictly limiting them to the number that they have already accrued. This can sometimes lead to an overpayment of holiday pay, if the employee then leaves or does not work as many hours as anticipated. Employers are entitled to reclaim any such overpayment from the employee’s wages.

How does annual leave accrual work?

Zero hours workers aren’t the only ones who accrue annual leave. Although all employees are entitled to the statutory 5.6 weeks, this is the full annual allowance and assumes that they will work for their employer for the entire year. Again, many employers allow their employees to use their leave as they choose and do not limit them to the number of days already accrued. Accrual will usually only be an issue where an employee starts or leaves part way through the year.

There are varying rules on how annual leave is accrued depending on how long the employee has worked for you. Employees in their first 12 months (before the leave year resets) accrue their leave differently to those who have worked since the beginning of the leave year.

How does accrual work for employees in their first 12 months?

Unless an employee starts work at the very beginning of the leave year, their allowance will be prorated to reflect the part of the year that they did not work for that employer. So, if they started halfway through the year, they would receive half of their annual allowance (see the previous sections on how to calculate an employee’s annual leave allowance for a full year).

Most employers will have a set annual leave year usually, but not necessarily, running from January to December. This dictates when their employees’ allowances reset. It is easier for an employer to keep track of entitlement when the dates used are the same for everyone, rather than having a separate leave year for each employee which resets on the anniversary of their joining the company.

A worker in their first 12 months accrues 1/12 of their annual allowance on the first day of each month. This can be the first calendar day, or the monthly anniversary of their first day of employment, i.e., if they started on the 15th, they would accrue 1/12 every 15th of the month. HMRC suggests that the second option is fairer and more likely to be correct, although this is not legally binding as the legislation does not specify.

For example, an employee entitled to 28 days per year who started on 1 July would accrue 14 days by 31 December – 2.33 days on 1 July, 2.33 on 1 August, so on and so forth. Where the total prorated amount for the year includes a partial day, this should always be rounded up to the next half day. So, 2.36 days become 2.5, and 6.86 days become 7. You are not required to round to the next full day.

Why do I need to calculate my employee’s accrued holiday when they leave?

You might think that when an employee leaves, you don’t need to think about their holiday entitlement anymore – but unfortunately that’s not the case.

Legislation states that you need to pay the employee for any annual leave they have accrued but not taken. This is so that employees leaving employment or switching employer are not disadvantaged.

Similarly, if an employee has taken their full entitlement before handing in their notice part way through the year, then they will have been overpaid holiday pay, which the employer is entitled to recover. It is therefore important to pay attention to a soon-to-be ex-employee’s leave entitlement.

Calculating a pro rata allowance for a leaver is different than for an employee in their first 12 months. The proportion of leave they are entitled to should reflect the proportion of the year they were employed, and the legislation says that this should be calculated on calendar days in employment, not only on days worked.

For example, if the leave year starts on 1 January and your employee leaves on 7 August, they would have been employed by you for 219 calendar days out of 365 (220 out of 366 if it was a leap year). 219 days is 60% of the full year, so they would be entitled to 60% of their annual allowance.

For zero-hours workers, you would instead calculate how much leave they had accrued by checking how many hours they had worked in the current leave year (see the previous section on zero-hours workers).

You would then deduct any days that they had already taken (including any days they might be using to cover their notice period) from their prorated annual allowance. If they have more days accrued than taken, you need to pay them for these days when they leave. If they have more days taken than accrued, then you are entitled to recover those days from their final pay.

Do employees still accrue annual leave when they are off sick?

As long as they are still employed, they will continue to accrue annual leave. This applies to all kinds of leave, such as maternity, paternity, adoption, etc.

If only difference is if the employee is on a zero-hours contract, as they will not accrue leave unless they are working.

Can annual leave days be carried over from one year to the next in the UK?

Because 4 weeks out of the statutory 5.6 are covered by the Working Time Regulations 1998 (which implemented the corresponding EU law into UK law), the rules for carrying these over are different to the remaining 1.6 weeks.

These 4 weeks usually cannot be carried over into the new leave year, so it’s use them or lose them. Employees should also not be paid for any days in lieu of taking them unless they are leaving the business. This is because the spirit of the legislation is to guarantee employees paid time away from work and paying them for not taking it would be effectively encouraging them not to do so.

The remaining 1.6 weeks can be carried over, however there should be a written agreement between the employer and employee to this affect, such as in the employment contract. Where an agreement exists, those days can be carried over.

Lastly, any additional leave over and above the statutory 5.6 weeks is left to the employer to decide whether employees can carry it over or not.

These are the standard rules for carrying over annual leave, but there have been some changes made relating to the COVID-19 pandemic.

What are the rules on carrying over annual leave in the UK during COVID-19?

With the massive changes that took place in our working lives due to the COVID-19 pandemic, the government recognised that not all employees would have the opportunity to use their statutory allowance before the new leave year rolled around.

In 2020 they issued an amendment to the Working Time Regulations which provide for carrying over additional annual leave, where certain conditions are met. Employers should still do everything they can to ensure leave is taken within the correct year, but if it is not ‘reasonably practicable’ for them to do so, then up to 4 weeks of leave can be carried forward into the next 2 leave years.

But what counts as ‘reasonably practicable’? Government guidance suggests several factors to take into account:

  • Whether the business has faced a significant increase in demand due to coronavirus that it would reasonably require the worker to continue to be at work and cannot be met through alternative practical measures.
  • The extent to which the business’ workforce is disrupted by the coronavirus and the practical options available to the business to provide temporary cover of essential activities.
  • The health of the worker and how soon they need to take a period of rest and relaxation.
  • The length of time remaining in the worker’s leave year, to enable them to take h holiday at a later date within that leave year.
  • The extent to which the worker taking leave would impact on wider society’s response to, and recovery from, the coronavirus situation.
  • The ability of the remainder of the available workforce to provide cover for the worker going on leave.

Essentially, this is aimed at the sectors hardest hit due to the pandemic, such as nursing, supermarket and delivery workers, etc, but can equally apply to any business facing difficulties. It recognises that where an employee’s presence is essential at work, it is unfair to penalise them for not taking their annual leave.

Does furlough impact on annual leave entitlement?

 Although furlough has now ended, we are still part way through the leave year for most businesses, and so employees might rightly still wonder whether having been on furlough has affected their annual leave entitlement and ability to carry days forward.

Just as employees on sick leave, workers on furlough continue to accrue annual leave in the same way as those still working, because they are still employed by their employer. Remember that unless the worker is on a zero-hours contract, annual leave accrual is based on time in employment, not time worked.

Furlough should also have had little impact on the employee’s ability to take their leave within the correct year. Workers on furlough were not prevented from taking annual leave at the same time, and employers could claim back the relevant percentage of their holiday pay from HMRC.

Where the employer was in such financial difficulty as to be unable to cover the top up required for holiday pay, since employees were to be paid at their full rate despite being furloughed, then this might count as it not being ‘reasonably practicable’ for the employee to take their leave and the same rules for carrying it over would apply – up to 4 weeks for the next 2 years.

And that’s everything you need to know about calculating your employees’ annual leave allowances. Remember to contact Empowered by Cloud if you need further business advice or help with your accounting.

You can find the government’s guidance on holiday allowances here and their further guidance on calculations for different types of contracts here. You can also find information on holiday entitlement changes due to coronavirus here.

Laura Taylor

Laura Taylor

Laura made the bold choice to start Empowered by Cloud in 2018 on her own, with only £200 funding. Her motivation for helping businesses become more financially aware has now established her as a leader in cloud accountancy. She was recognised as one of LinkedIn’s Top Voices of 2020.

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