If you’re a business owner and you have employees, you’ve probably thought about holiday entitlement and how it’s calculated.
In theory, working out holiday entitlement should be straightforward, but with factors such as zero hour contracts, overtime, casual hours and more, calculating holiday entitlement isn’t as easy as it used to be.
The good news is that this process can be simplified through human resources software such as Payescape’s HREscape. Find out everything you need to know about working out holiday entitlement for your employees in our guide.
Holiday entitlement refers to the amount of holiday an employee has the legal right to take. Almost all employees who work a five day week must receive 5.6 weeks or 28 days of paid annual leave.
You can choose to offer more days paid leave than is legally required. It is common for employers to offer an extra days holiday after they’ve been employed for a year.
Part-time workers are also entitled to 5.6 weeks’ paid holiday, but in most cases this amounts to fewer than 28 days, as their working week is shorter
For example, if they work 2 days a week, they must get at least 12.2 days of leave a year (2 × 5.6).
For employees who work term-time or in shifts, for every hour they work, they are entitled to paid time off.
One way to calculate this is by multiplying the number of days or hours worked in an average week.
You might find it helpful to get an estimate of holiday entitlement by calculating leave based on days or hours worked in an average week.
Legally, employers don’t have to pay staff any more than 28 days paid holiday. Even if your employees work a six day week, they are only entitled to 28 days holiday.
You are not legally obliged to give bank holidays as paid leave, but they can be included as part of your employee’s 28 days statutory entitlement.
Employees on statutory paternity, maternity, shared parental or adoption leave have their employment rights protected, which includes their right to accrue holiday entitlement.
Unless your employee has handed their notice in, you cannot pay them in lieu. Even if you have dismissed an employee for misconduct or fired them, you are still obliged to pay them holiday.
For each week of statutory holiday entitlement an employee takes, they are entitled to a full week’s pay. This pay is worked out in accordance to the hours they work and how they’re paid for them.
Employment pattern: How one week’s pay is calculated
Full-time or part-time: Fixed hours and fixed pay
Your employee’s pay for a week
Full-time or part-time: Shift work with fixed hours
The average number of weekly fixed hours your employee worked in the previous 52 weeks, at their average hourly rate
Casual work, inc zero-hours contracts: No fixed hours
Your employee’s average pay from the previous 52 weeks (only counting weeks in which they were paid)
Calculating an employee’s average hourly rate should be done by only the hours worked and how much was paid for them. You do this by:
● Calculating an employee’s average hourly rate should be done by only the hours worked and how much was paid for them.
● You should take the average rate over the last 52 weeks.
● Typically, a ‘week’ goes from Sunday to Saturday. You should only use another seven -day period such as Monday to Tuesday if that is how you calculate your worker’s pay.
● If your employee has less than 52 weeks of pay, use the average pay rate for the full weeks they have worked.
● If no pay was paid in any week, you can work this out by counting back another week so the rate is based on 52 weeks in which pay was paid. You can count back to a maximum of 104 weeks for this.
If your employees are paid monthly or via a salary you can work out their pay by:
● Calculating their average hourly pay for the last month. This is done by dividing the month’s pay by the number of hours worked in the month.
● Calculating their weekly pay. You do this by multiplying the average hourly pay by the number of hours worked in a week.
● This weekly pay calculation is then used for each of the last 52 weeks to work out an average week’s pay.
Miscalculating and underpaying your employees holiday entitlement can lead to tribunals and be a costly mistake to make.
For example, in 2015 John Lewis had to pay £40m in owed holiday after they’d miscalculated their employees’ holiday entitlement for seven years and had to backdate a significant amount of payments.
One way to ensure you’re calculating holiday entitlement and pay properly is by implementing HR software. At Payescape, we understand the intricacies surrounding HR management and employment law. Sometimes it can feel like a minefield to navigate.
With compliance high on the agenda, the importance of robust policies and processes are key to protecting your business and your employees. Get in touch with our HR consultants today and find out how we can help you.
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Payescape Limited is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017 (register number 821826) for the provision of payment services.