The current rules
Current legislation states that almost all workers are legally entitled to 5.6 week of paid annual leave per year. This includes agency workers, workers with irregular hours and those on zero-hours contracts.
As an example, for most employees who work 5 days per week, 5.6 weeks of holiday translates to a minimum of 28 days’ paid annual leave by law. Employers can choose to provide more leave than the legal minimum and if they do, they don’t have to apply the same 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 are also entitled to a 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 instance, 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).
An employer can choose to include bank holidays as part of an employees’ statutory annual leave, but that being said, bank holidays do not have to be given as paid leave by law.
Varied Pay
It can be common for companies to employ workers with irregular hours and / or varied pay, e.g. those who work irregular shift patterns or overtime. This can make it harder to work out their holiday entitlement.
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 they are on zero-hours contracts, then holiday pay should be based upon their average pay from the previous 52 weeks, only including the weeks they were paid.
If you are in a situation where 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 Considerations
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.
Get in touch
As it is important that employers calculate their employees’ holiday entitlement and pay correctly for each individual, the process can often be complex and time consuming. Our payroll team are here to support you with any queries you may have, please get in touch via payroll@pmm.co.uk or call 01254 679131.