Calculating Holiday Entitlement for Staff Members
If a full or part time member of staff works a set number of hours or days per week, the HMRC holiday calculator can be used to calculate their holiday entitlement (please note - the calculator is based on 28 days holiday including bank holidays for full time employee’s).
The calculator can also be used for employee’s starting or leaving part way through a holiday year.
The link to access this is below:
Calculate holiday entitlement
Where an employee is entitled to a ‘part day’ of holiday, e.g. 11.2 days, please see more detail regarding this here.
Bank Holidays
The minimum 28 days holiday for a full time employee, as per the HMRC guidance, includes bank holidays.
If an employee would not normally be at work on a specific bank holiday, they do not need to be paid for that day and they would not have a day deducted from their holiday entitlement.
Staff that work a variable number of hours per week
There has been a recent court case, held in the Supreme Court, which has deemed using the 12.07% method for calculating holiday entitlement for employees as unlawful.
This method was previously used for employees that work a variable number of hours each week. It would calculate the holiday they had accrued to date based on 12.07% of the number of hours the employee had physically worked to date.
The new method to calculate variable employees’ holiday entitlement, is based on the average number of hours they work per week. Detailed guidance can be found here.
As previously mentioned, a full-time employee is due a minimum of 5.6 weeks holiday (28 days) per annum.
Term Time Only Employees
Where an employee only works during the term time (for example, at a school), and their salary is paid in 12 equal monthly instalments they are classed as a full time employee for holiday purposes and therefore should get a minimum of 5.6 weeks of holiday entitlement.
This also applied to employee’s with regular shift work and zero-hours workers with ongoing contracts
Detailed guidance on this can be found here.
Calculating Holiday Pay for Staff Members
When an employee takes holiday, they should get the same pay that they would normally receive when they’re at work – whatever their working pattern.
Legislation states that an employee should only receive holiday pay either when they physically take it or when they cease their employment.
For an employee who is paid the same amount each week, this is simple to determine – just pay what they would normally receive.
However, for an employee who does not receive the same pay each week due to working a variable number of hours, there are more factors involved and the 52 week average method must be used. Detailed guidance on this can be found here.
Regular overtime, bonuses & commission
If an employee receives regular bonuses, overtime or commission, these should be taken into consideration when calculating their holiday pay.
A basic definition of regular is if the bonus, overtime or commission is always at the same time of year, it is frequent or it follows a pattern. If you think that your employee is affected by this we recommend you seek HR advice to confirm, prior to adjusting your holiday calculations.
If your employee does receive any of these payments on a regular basis, you can find some detailed guidance on this here.
Incorrect Holiday Pay
If the employee has been paid incorrect holiday pay, and the employee takes the employer to court, the company may have to pay backdated holiday pay to the employee.
If the employee has been underpaid holiday, the backdated holiday pay due to the employee would be capped up to two years prior.
If the employee has been paid no holiday pay at all, the backdated holiday pay due to the employee would not be capped and therefore the employee could be due all holiday pay from the start of their employment.
Holiday that is less than a full day
If the employees annual holiday entitlement includes 'part days' — for example, 11.2 days — you need to determine how the employee can use this part day.
Employers cannot round down part days. But they also do not have to be rounded up to the nearest full day, unless you choose to.
For example, the employee could leave early or come in late to use the part day.
Calculating holiday entitlement – Variable paid employee
It is the employer’s responsibility to determine how many hours an employee works per week on average.
E.g. Company A has determined that Archie works 20 hours per week on average.
A full time employee of Company A is entitled to 28 days including bank holidays which is equal to 5.6 weeks of holiday.
To calculate Archie’s annual holiday entitlement:
20 hours per week x 5.6 weeks entitlement = 112 hours holiday due per annum.
The above entitlement calculation can also be pro-rata’d, for employees starting or leaving part way through a holiday year.
E.g Company A’s holiday year normally runs from 1 January – 31 December.
Archie has handed in his notice, and will be ceasing his employment on 31 August.
112 hours holiday due per annum as per the above calculations / 12 months in the holiday year x 8 months worked during the holiday year = 74.67 hours holiday entitlement from the beginning of the holiday year to Archie’s leave date.
If he has not taken all of his entitled holiday by the time his employment ceases, he is due the remainder of his holiday pay on his final payslip.
Holiday Entitlement/Pay – Term Time Only Employees
Where an employee has regular hours during term time and their salary is paid in 12 equal monthly instalments over the year (e.g a teacher), to ensure they receive the minimum statutory holiday allowance, the employer should add 5.6 weeks onto the number of weeks the employee is contracted to work during the year, before averaging their pay into the 12 equal instalments.
E.g. Beth is contracted to work at Company B, 40 hours per week for 39 weeks per annum and her pay is averaged over the year.
Beth can have her holiday of 5.6 weeks included in her averaged pay.
39 weeks worked + 5.6 weeks holiday = 44.6 weeks to be paid per annum
44.6 weeks x 40 hours worked per week x £9.50 (Beth’s hourly rate) = £16,948 pay per annum.
£16,948 / 12 months = £1,412.33 salary to be paid per month (including holiday pay).
Calculating Holiday Pay – Variable Hours
If the employee does not have fixed or regular hours, the holiday pay will be based on the average pay the employee received over the previous 52 weeks (this is the 52 week period immediately before the week including the holiday absence). This would apply, for example, if the employee does casual work on a zero-hour’s contract or works shifts that change without a fixed pattern.
If, for any of the 52 weeks, the employee received no pay at all then these weeks should be excluded from the calculation and earlier weeks used in their place. This method can be used up to a maximum of 104 weeks prior to the absence.
If the employee was paid only a small amount of pay for a week due to, for example, sickness, you should exclude this week and count back another week, where they received their usual pay. This is because the employee should be paid the same amount when they are on holiday as when they are at work.
E.g. Company C has determined that Charlie works 20 hours per week on average.
Charlie has booked off 1 week’s holiday.
Charlie has earned £9,880 in the last 52 weeks (no unpaid or SSP weeks in this period).
£9,880 / 52 weeks = £190.00 pay per week, this is what he should be paid for his week’s holiday.
Please note – the employee’s current hourly rate, also needs to be taken into consideration prior to paying the employee based on the above calculations. Please see below.
Although the above calculations are as per legislation, the employee’s current hourly rate must also be taken into consideration.
Using the example of Charlie – we have determined that he is going to be paid £190.00 for his week’s holiday.
However, if his current hourly rate is now £10 per hour, and he still normally works 20 hours per week on average he would be paid £200.00 per week if he were working.
Referring back to HMRC’s wording of ‘when an employee takes holiday, they should get the same pay that they would normally receive when they’re at work – whatever their working pattern.’ This means that Charlie should receive the higher of his average OR his current pay.
Therefore, Charlie should receive £200.00 for his week of holiday which is the higher of the 52 week average (£190.00 per week) and his current weekly rate (£200.00 per week).
Holiday Pay – Regular overtime, bonuses & commission
As mentioned, if the employee receives regular bonuses, overtime or commission, these should be taken into consideration when calculating their holiday pay. If you think that your employee is affected by this we do recommend you seek HR advice to confirm, prior to adjusting your holiday calculations.
E.g. Dom works for Company D. He works 40 hours per week at £9.50 per hour standard per week.
However, Dom also does regular overtime for the company which is paid at time and a half (£14.25 per hour).
Dom receives a fixed salary of £380 per week.
In addition to this he has also earnt £2,000 in overtime in the last 52 weeks.
Dom has taken one week’s holiday.
Regular holiday = £380 per week, as per his fixed hours.
Overtime holiday top up = £2,000 / 52 weeks in the year = £38.46 average overtime worked per week
£380 fixed holiday + £38.46 overtime holiday top up = £418.46 due to Dom for his week’s holiday.