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Holiday Leave and Pay

This employment guide explains your employees’ rights to holiday leave and pay.

Introduction

Employers are often confused as to what holiday entitlement they should grant their staff. This is particularly the case where staff work variable shifts, work part time or work ‘term time only’.

The legal position

UK legislation states that employees are entitled to a minimum of 5.6 weeks annual leave each year. This is inclusive of bank holidays or any days that the business usually closes. 5.6 weeks equates to 28 days for an employee working 5 days per week.

If an employee’s terms and conditions of employment state a higher level of holiday entitlement then this will take precedence over legislation.

The practice of ‘rolling up’ holiday pay, ie, paying staff for any unused holiday, has (with certain minor exceptions) been declared to be unlawful.

Calculation of entitlement

If employees usually work 5 days in any 7 day week then their holiday entitlement is 28 days in a full holiday year. This applies irrespective of the number of hours worked per day at their normal rate of pay.

If an employee works less than 5 days per week, the following calculation applies:

  • Divide 28 days by 5 (normal working days for a full time employee) = 5.6
  • Multiply 5.6 by the number of days the part time person works – eg, an employee working 3 days per week: 5.6 x 3 = 16.8 days. You cannot round down and we recommend you round this figure up to 17 days.

How much should be paid for each day’s holiday?

The fairest way to calculate holiday pay is to identify an employee’s basic pay for a normal working week divided by the number of days they work in the week. For example, a person earning £120 per week and working 3 days should receive £40 per day holiday pay irrespective of the number of hours they would have worked that day or the amount they would actually have earned. This formula overcomes the problem of staff who work various hours on different days, say 3 hours one day and 4 hours on the other two days.

Following a recent legal ruling in relation to overtime and holiday pay, if an employee is guaranteed overtime or the contract implies that there is a requirement to undertake overtime, then this should be taken into consideration when calculating holiday pay. Our advisors will be able help you deal with this and other calculations – just give us a call on 01455 444 222 or contact us.

Confirming the holiday year start date

The use of phrases such as ‘20 days holiday plus bank holidays’ or ‘our holiday year starts on 1st April’ can result in you breaching your statutory responsibilities when it comes to providing holiday.

For example, starting the holiday year in April can lead to unintended consequences, particularly in relation to the Easter period.

If Easter fails in April this year and next year, it is not a problem. However, if Easter falls in April this year and March next year, you will be paying for 10 bank holidays this year but only 6 next year. This can lead to an underpayment of holiday which would be unlawful. In the first of these years you are overpaying by two holiday days and in the next year you will have to make up the entitlement by giving two extra days.

If you fail to provide your employees with their statutory minimum entitlement you could face the risk of an employment tribunal claim.

If your statement of entitlement is wrong you could have someone starting or leaving during the holiday year and you may not pay them correctly, leading to a tribunal claim. Working on 28 days and not 20 days plus bank holidays is the answer, providing you set out your rules correctly.

The importance of holiday rules

You should set out your holiday rules in writing, including the start of the holiday year, confirming if holiday entitlements are inclusive or exclusive of bank holidays and the procedure for applying for and authorising holiday requests.

This prevents misunderstandings and enforces equality of treatment for each holiday request. How much notice should the employees give to request holiday? Do you reserve the right to refuse? Do they have to keep some days from their entitlement to use when the business is closed? Can they carry any holiday forward to the next year and if so how much? (Legal limits apply).

If you refuse an employee a request to take holiday, and you think he or she may take it anyway, we advise that you send a letter stating that you have refused the request and explaining why. Remind the employee, also, that if he or she takes the holiday without permission this could be classed as gross misconduct which could lead to having their employment terminated.

Recent law change - holidays and sickness

Following a recent EU ruling, if an employee falls sick before or during pre-booked annual leave, he or she is entitled to take this leave at another time.

There is currently no legal guidance as to the extent to which employees have to prove they were unfit for work. The reasonable assumption is that the normal rules in determining whether an employee was sick will apply. Our advice is therefore that employers should request that employees provide a medical certificate or other evidence to prove that they were unfit for work. You must then decide if the employee has provided sufficient evidence of sickness to demonstrate he or she was unfit for work.  If so, you will have to allow the employee to re-book annual leave.

If an employee is sick during pre-booked annual leave, he or she is entitled to sick pay as set out in the contract of employment.

Conversely, recent changes in legislation mean that employees can choose to take paid holiday whilst on sick leave. This might happen if, for example, you pay only a certain number of days full pay to staff who are away ill and an employee wishes to protect his or her earnings by taking additional days as holiday.

The importance of the contract of employment

The contract of employment, if worded correctly, should prevent most disputes regarding holiday entitlement. Importantly, the contract should contain a good strong grievance and appeal procedure to ensure that any disputes are handled in-house and do not lead to expensive tribunal claims. A tribunal always costs time and money and creates stress, whether you win the case or lose it.

Getting it right

The rules surrounding holiday leave and pay are quite complex. HR:4UK can help you to calculate holiday entitlements and pay to ensure that you meet all your legal obligations.

For further help and advice, speak to one of our advisors by calling 01455 444222 or complete our online enquiry click here and an advisor will contact you shortly.