A guide to holiday pay in 2021 for employers

As we head towards the Summer months and the typical ‘holiday season’, it’s worth making sure that as an employer, you are up to speed with holiday pay rules, as although your employees are less likely to be going abroad this year, they will still need to use their holiday entitlement by law (and many are likely to have opted for UK staycations!).

In this article, PM+M’s payroll director Julie Mason answers some frequently asked questions regarding holiday pay in 2021 to help you ensure your business remains compliant…

 

Julie, what are the current holiday entitlement rules?

As per current legislation, almost all workers are legally entitled to 5.6 weeks of paid annual leave per year. This includes agency workers, workers with irregular hours and those on zero-hours contracts.

To put this into perspective, for most employees who work 5 days per week, 5.6 weeks of holiday translates to a minimum of 28 days’ paid holiday per year. For those on fixed hours and pay, a week’s holiday pay will simply be equivalent to a week’s salary.

Statutory paid holiday entitlement is limited to 28 days, so any employees working over 5 days per week are still only entitled to 28 days’ paid annual leave by law. Employers can choose to offer more leave than the legal minimum (many businesses do this as a way to attract and retain staff), however, they don’t have to apply the rules that apply to the statutory leave to the extra holidays (for example, the company may have a policy that means a worker may need to be employed for a certain amount of time before they become entitled to the extra leave).

Part-time workers
Part-time workers are also entitled to at least 5.6 weeks of paid holiday each year, however this will amount to fewer than 28 days, and will be pro-rated based on their contracted working pattern. For example, if an employee works 3 days per week, they must receive at least 16.8 days of annual leave each year (3 x 5.6).

If you are unsure about how many holidays a part-time worker should have, you can use the Government’s holiday entitlement calculator here.

Bank holidays
As an employer, you can choose to include bank holidays as part of your employees’ statutory annual leave, but that being said, bank holidays do not have to be given as paid leave by law.

Key things to keep in mind
By law, workers have the right to:

  • Get paid for leave
  • Accrue holiday entitlement during maternity, paternity and adoption leave
  • Build up holiday entitlement whilst off sick
  • Request holiday at the same time as sick leave
  • Be paid any unused accrued holiday pay if they leave employment

 

How can an employer calculate holiday pay for employees with varied pay?

It’s common for companies to employ workers with irregular hours and / or varied pay (for example, those who work in irregular shift patterns, on a term-time basis, or overtime), but this can make it harder to work out their holiday entitlement.

In short, these employees are still entitled to the statutory minimum paid leave, however their holiday pay should be calculated as the average number of weekly fixed hours they have worked in the previous 52 weeks at their hourly rate.

If your employees have no fixed hours because they are on zero-hours contracts, then their holiday pay will be based upon their average pay from the previous 52 weeks, only including the weeks they were paid.

Be aware that if your employee was not paid at all in any of the 52 weeks, you should count back to the weeks they were paid, up to a maximum of 104 weeks from the date they want to start their holiday. You should base your average on a total of 52 weeks in which the employee received payment (these 52 weeks do not need to be consecutive).

Other things to bear in mind

  • If your employees earn regular commission or bonuses, you should include these in your calculations for holiday pay, as it should also take into consideration any additional payments that they receive on a regular basis.
  • This is also the case for overtime. Whether compulsory or voluntary, you should factor in any additional hours when calculating your employees’ average rate if the overtime is worked on a regular basis. You do not need to include voluntary overtime that is only worked very occasionally.

 

Do I need to provide any employees on furlough with paid leave?

As the Coronavirus Job Retention Scheme (CJRS) is still operational, the rules surrounding holiday pay for employees who are on temporarily furlough remain in place.

Holiday pay
Workers have the right to accrue holiday entitlement whilst furloughed, and they can also choose to take leave during the period in which they are on furlough. Employers can continue to claim for a furloughed worker’s wages whilst the worker takes annual leave.

Employers must calculate holiday pay as normal for any time the worker was furloughed. If the holiday pay turns out to be more than the worker was paid during this period, the employer must pay the difference.

Bank holidays
If a furloughed worker is not working on a bank holiday which they usually take as paid leave, they can agree with their employer to either take it as normal or take it at a later date.

Carry over
If due to the effects of coronavirus, employees have been unable to take leave, workers may be able to carry over untaken leave into the next 2 years. Examples of this could be that they are classed as key workers or they need to cover for co-workers and have no other opportunity to take leave in their holiday year.

 

Get in touch

As employers must calculate holiday entitlement and pay correctly for each individual employee, the process can be time consuming and complex. PM+M’s payroll team are here to support any clients who have queries, so please get in touch at payroll@pmm.co.uk if we can assist in any way.

For more information about anything in the above article, please get in touch using the button below.
Julie Mason
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