This guide will look at everything from straightforward questions relating to full-time employees to workers on irregular hours and workers who only work part of the year. We will look at how you calculate pay for holiday and will try to figure out what “normal” means.
The right to paid annual leave is, at the moment, an individually enforceable right. However, the plans to create a single enforcement body for employment rights may well lead to this being enforced by a regulator, much like the national minimum wage. In that case, the risks for employers will only grow.
For clarity, the Working Time Regulations apply to all workers. That is, anyone personally providing services. In this article the terms worker and employee are used interchangeably.
Understanding UK Statutory Holiday Allowance
Calculating the Basic Entitlement to Paid Holiday
Contrary to popular belief, a worker is not entitled to 28 days’ paid annual leave. A worker is entitled to 5.6 weeks’ paid annual leave. For workers who work a 5-day week, this equates to 28 days per year, which can be inclusive of public holidays.
This 5.6 weeks is comprised of:
a basic entitlement of 4 weeks' paid annual leave (20 days for a full-time worker). This corresponds to the rights under the EU Directive; and
an additional entitlement to 1.6 weeks' leave (eight days for a full-time worker) which is a right under UK legislation only.
The fact that the two rights stem from different places means that they may need to be treated differently. Decisions of the European Court of Justice on matters of interpretation of the Directive will only apply to the entitlement to 4 weeks' paid annual leave and not the additional 1.6 weeks.
The introduction of the additional 1.6 weeks' paid annual leave was in response to a common practice where employers would provide 4 weeks' paid leave, inclusive of public holidays. This meant that for businesses which shut on public holidays, the workers would only have 12 days' leave which they could freely take throughout the rest of the year.
So, whilst the additional 1.6 weeks' leave has its roots in the treatment of annual leave as it applied to public holidays, it is not a right to take the public holidays as 'holiday'.
Calculating paid annual leave on the basis of weeks has the effect that it translates neatly to part-time workers. If a part-time worker works 3 days out of 5, they are entitled to 60% of 5.6 weeks leave. If they work 1 day out of 5, they are entitled to 20% of 5.6 weeks leave.
The impact of course for part-time workers is that if they usually work on a Monday and their workplace is closed on a “bank holiday Monday”, they will have to take a day’s paid annual leave, reducing their holiday entitlement for other times of the year. They might deal with this through negotiation with their employer, for example, by taking the bank holiday as unpaid.
Calculation Methods for Paid Holiday Entitlement
The holiday entitlement calculation method for full-time workers is straightforward and for all practical purposes, you can give your worker 28 days paid annual leave and be compliant. If your workplace closes on the traditional eight public holidays, then your employees will have 20 free days to use as they like.
Similarly, and as noted above, a simple pro-rata calculation can be applied for part-time workers.
Part Time Leave Entitlement
Historically, there has been much difficulty over how to deal with workers on zero-hours contracts, with irregular hours or those who only work part of the year. Frequently, these categories would overlap. Agency workers, often engaged on zero-hours contract and with irregular hours, would have holiday accrue at 0.603 days per timesheet (often the same as per week). The 0.603 days being on the basis of accruing 5.6 weeks’ leave over 46.4 working weeks (52 - 5.6).
Eventually, the matter came to a head in the case of Harpur Trust where the Supreme Court held that a music teacher who only worked part of the year was entitled to the full 28 days’ paid annual leave. Additionally, the calculation methodology used by Harpur Trust was ruled incorrect and the Court’s ruling resulted in the situation where a part-year worker could have a disproportionately high rate of holiday pay when compared to a full-time employee.
This judgment led to the Government changing the law to outline how holiday pay should be calculated for part-year workers and workers with irregular hours.
For part-year workers or workers with irregular hours, their holiday entitlement should be calculated on an hourly basis as 12.07% of all hours worked. In the event that a part-hour is worked, the entitlement is rounded down if less than 30 minutes and up if 30 minutes or more.
Zero Hours Worker Entitlement
Notwithstanding this change in law, there are still issues that can arise. Careful consideration should be given as to whether an irregular hours worker is engaged on an overarching contract with irregular hours or a succession of individual contracts, each with regular hours. This latter scenario is prevalent with agency workers who would work on a range of different assignments.
Legal Limits and Legal Minima for Statutory Holiday Entitlement
Every worker is entitled to a minimum of 5.6 weeks’ paid annual leave, pro-rated accordingly. There is no legal limit to the paid annual leave that can be offered and practice varies widely. There are many companies that offer 28 days’ paid annual leave inclusive of public holidays. Similarly, many organisations will offer the benefit of additional leave above the legal minimum.
As noted above, and as we will discuss, this leads to three categories of leave all of which can be treated differently. Firstly, the 20 days’ leave offered under the original Working Time Regulations, which stem from the EU Working Time Directive (EU leave). The additional 8 days under the UK-only Regulations (UK leave). And finally, any additional, contractual days offered by an employer (contractual leave).
Leave Types Explained
Legal and Compliance Considerations
Relevant UK Regulations Governing Paid Annual Leave
There are a range of key obligations for an employer under the Working Time Regulations. For consistency, it can be beneficial to treat all leave to which a worker is entitled the same. However, we note where relevant options for deviation which might be attractive from an employer perspective.
Minimum Annual Leave Entitlement
Section 13: Employers must ensure that workers are entitled to a minimum of 5.6 weeks' paid annual leave.
Payment for Annual Leave
Section 16: Employers are required to pay workers for their annual leave at the rate of a week's pay for each week of leave taken. We address this in more detail below. Whilst this sounds simple, case law has heavily influenced what a week’s pay is by reference to the concept of “normal”.
Leave Year Determination
Section 15: Employers must define the leave year for their employees. This can be a calendar year, the employee's anniversary date, or any other fixed period of 12 months. For consistency, most employer’s align the leave year across workers rather than have an individual calendar year.
Carrying Over Leave
Section 13A(7): This is one of those areas where some deviation may be attractive. We deal with maternity and sick leave below and where the EU leave cannot be taken for those reasons, the law is clear that it must be carried forward. However the same is not true for UK leave or contractual leave. Generally, though paid annual leave must be taken in the leave year it is due.
Section 14: Upon termination of employment, employers must pay workers for any accrued but untaken leave. The amount paid should reflect the period between the start of the leave year and the termination date.
Termination of Employment
Employee Rights under the Working Time Regulations
Every worker has the right to paid annual leave from day one. Employers may, during the first year, require the worker to accrue the leave before they take it. This may be a good idea in very transitory workplaces where there is a risk of not recovering paid annual leave if a worker leaves having taken more than they are entitled to.
The major right, of course, is to be paid for annual leave and this is an inherently complex area.
The starting point is that a worker is entitled to be paid at the rate of a week’s pay for a week’s leave. For a full-time, salaried employee this will not be a complex calculation.
Holiday Pay for Salaried Employee
For irregular hours workers or part-year workers, they are entitled to be paid at a rate calculated as an average of their pay over the 52 weeks preceding their leave. Any weeks in which they received no pay (or SSP or SMP) should be discounted. Included in this calculation should all remuneration they normally receive connected with doing their job. That is, if they work on a commission basis, commission payments should be included. Any payments linked to professional or personal status should also be included.
Holiday Pay for Irregular Hours Worker
Where it becomes difficult is in connection with overtime. Overtime pay should only be included if overtime is “normal”. Over recent years, the concept has arisen that when a worker takes paid annual leave, they should be paid at their normal rate. That is, the worker should not be disadvantaged by taking paid annual leave.
The difficulty is in systematically applying these rules. At what point does overtime become normal? Employers should carefully analyse working patterns and put in place processes to facilitate compliance whilst probably accepting that it will be difficult to get it right 100% of the time. It is also important to note that these requirements only apply to EU leave. In relation to UK leave and contractual leave, employers can choose to pay at the basic rate of pay.
Rolled-up Holiday Pay
Rolled-up holiday pay refers to the practice of incorporating payment for holiday in a worker’s hourly rate or other remuneration, rather than paying it to them separately when they take leave.
The lawfulness of this practice has been questioned over the years. That is because the Working Time Directive is primarily concerned with health and safety. The European Court of Justice held that the practice of rolled-up holiday pay could act as a disincentive to take paid annual leave contrary to the aims of the Directive. It was eventually held that the practice was de facto unlawful but without any real consequence. This is because provided the employer allowed holiday to be taken and the rolled-up holiday pay correctly reflected the worker’s entitlement, the worker had no claim against the employer. That is to say, there is no freestanding claim for paying rolled-up holiday pay.
However, in the recent changes affecting part-year workers and irregular hours workers, the Government legislated to permit employers to pay rolled-up holiday to both part-year workers and irregular hours workers at a rate of 12.07% of their pay (based on 28 days’ paid annual leave per year).
Common Disputes and Resolutions regarding Holiday Entitlement
Disputes in connection with holiday pay are common. Increasingly flexible and varied ways of working are not adequately addressed by the current law.
Incorrect Calculation of Holiday Pay
Workers may dispute the amount of holiday pay received, arguing that it does not reflect their normal earnings, especially if they receive variable pay such as commission or overtime. This is consistently an issue for employers. In one of the more complex cases, a salesman brought a claim on the basis that when he was on holiday, he had a reduced earnings capability for commission and that this should be taken into consideration when he next took holiday and the averaging was used to calculate his rate for annual leave.
As we explained above, the current legal position is that a worker should receive their “normal” pay for a week’s leave. Employers should try to articulate the concept as clear as possible in the holiday pay policy and be open to any questions raised by employees.
Denied Holiday Requests
Workers may feel their holiday requests have been unfairly denied or that they are unable to take their paid annual leave within the leave year. This is where a clear and consistent policy is vital. These issues tend to arise where employees feel that decisions are being arbitrarily made, rather than against clear objective criteria.
The policy should address hoe early requests should be made; detail any restrictions on multiple people from the same team being off; and set out grounds on which requests may be denied.
Carry Over of Untaken Leave
Workers may dispute the inability to carry over untaken leave to the next year, especially if they were unable to take leave due to business needs or personal circumstances. Even moreso if there is a different treatment of carrying over EU leave and UK or contractual leave.
The policy should clearly detail how leave will be taken and in what order i.e. do requests use EU leave first or UK leave first? Is UK leave only applied to public holidays? Any policy relating to carry over of leave should also detail how long that leave remains “live” for and that it is used first in any requests for the new leave year.
Holiday Pay During Sick Leave
The current law allows an employee to cancel paid annual leave and convert it to sick leave if they are sick. Some of the difficulties with this arise from the fact that employee’s can self-certify their sickness for up to 7 days so employers cannot ask for a form of proof.
Additionally, in the event of long-term sickness prohibiting an employee from exercising their right to paid annual leave, they are entitled to carry it over to the following leave year (EU leave only).
The company policy should be carefully drafted to respect the legal position and protect the company. The policy should deal with how sickness interacts with EU, UK and contractual leave.
Practical Consequences and Best Practices
Implementing a Holiday Policy
We have frequently referenced in this guide the benefit of a clear holiday pay policy. But what should your policy cover? Whilst the full contents of a policy are too detailed to cover in this article, we can provide a brief outline of what a good holiday pay policy looks like.
1. Purpose
- Objective: State the purpose of the annual leave policy, such as ensuring employees take adequate rest, maintaining operational efficiency, and complying with legal requirements.
2. Eligibility
- Employee Categories: Specify which employees are eligible for annual leave (e.g., full-time, part-time, temporary, and probationary employees).
- Accrual Basis: Explain how annual leave accrues (e.g., based on length of service, pro-rata for part-time employees).
3. Entitlement
- Leave Amount: Define the annual leave entitlement for different categories of employees (e.g., 28 days for full-time employees, pro-rata for part-time).
- Public Holidays: Clarify whether public holidays are included in or additional to the annual leave entitlement.
- Additional Leave: Mention any extra leave entitlements, such as company-specific holidays or long-service leave.
4. Carry Over
- Carry Over Rules: Explain the rules for carrying over unused leave to the next leave year, including any limits (e.g., a maximum of 5 days) and deadlines (e.g., use within the first three months of the new year). Remember that in certain circumstances, you cannot restrict the carry over of unused leave if it couldn’t be used due to sickness or maternity leave.
5. Requesting Leave
- Request Procedure: Outline the process for requesting leave, including the required notice period (e.g., two weeks) and the method (e.g., online system, written request).
- Approval Process: Explain how leave requests are approved, including any considerations for approval (e.g., operational needs, first-come-first-served basis).
6. Leave During Notice Period
- Notice Period Rules: State the rules for taking leave during the notice period when an employee has resigned or been given notice of termination.
- Leave Settlement: Describe how accrued but unused leave is handled upon termination (e.g., payment in lieu of leave).
7. Special Leave Types
- Sick Leave: Explain the policy for converting sick leave to annual leave, if applicable.
- Maternity/Paternity Leave: Outline any special considerations for maternity or paternity leave affecting annual leave.
- Bereavement Leave: Specify the provisions for bereavement leave and how it impacts annual leave entitlement.
8. Payment for Leave
- Holiday Pay Calculation: Detail how holiday pay is calculated (e.g., based on normal remuneration, including overtime and commissions).
- Pay Dates: Specify when holiday pay will be paid (e.g., on the usual payday or in advance of the leave).
- Leave Balances: Describe how employees can check their leave balances and the responsibility for managing their leave.
10. Compliance and Review
- Legal Compliance: Ensure the policy complies with relevant employment laws and regulations (e.g., Working Time Regulations 1998).
- Policy Review: State how and when the policy will be reviewed and updated, and who is responsible for this process.
11. Dispute Resolution
- Handling Disputes: Outline the process for resolving disputes related to annual leave, including the steps employees should take if they have a concern.
Managing Special Cases
As noted briefly above, in the event of an inability to take EU leave due to long-term sickness, maternity, paternity or adoption leave, there is an unfettered right for the worker to carry that leave through to the next holiday year. This is not the case for UK or contractual leave and you should ensure that your policy deals with how these categories of leave will be treated.
You should also anticipate dealing with the interaction of holiday pay and other types of long-term absence such as sabbatical leave or furlough.
Conclusion
Understanding and managing statutory holiday allowances can be complex, but it's essential for both employers and employees to ensure compliance with the Working Time Regulations and maintain a harmonious workplace. By grasping the basic entitlements, proper calculation methods, and legal considerations, you can navigate the intricacies of holiday pay with confidence. Remember, a clear and comprehensive holiday policy not only helps in avoiding disputes but also enhances employee satisfaction and retention.
To ensure your business stays compliant and your employees are well-informed about their holiday entitlements, take the following steps today:
1. Review Your Current Holiday Policy: Make sure it aligns with the latest legal requirements and best practices outlined in this guide.
By taking these proactive steps, you'll be well-equipped to handle holiday entitlements, enhance employee satisfaction, and maintain smooth business operations.
