Over recent years there have been a number of decisions from the UK and European courts on calculating holiday pay. This has left many UK employers in a state of confusion, with many having to take risks in the hope that the method they are using is correct for their staff. Earlier this year, the then government sought to clarify several areas that had become unclear.
What is the minimum statutory holiday entitlement?
What should be a simple question to answer has evolved through case law and legislative changes. The minimum leave for all workers is 5.6 weeks. Under the Working Time Regulations this 5.6 weeks is divided between two elements, for which slightly different rules apply. These elements are:
- Regulation 13 leave – four weeks’ leave
- Regulation 13A leave – 1.6 weeks’ leave
This minimum is inclusive of bank holidays. Many employers choose to offer slightly more than the statutory minimum, which they set out in their contracts of employment.
How does the method of calculation vary for different groups of employees?
For staff who work regular hours, for example, they work a weekly pattern of ‘x hours per week’, then their regulation 13 leave should be calculated based on their ‘normal remuneration’ over a 52-week averaging of pay received. Pay for these purposes should include, in addition to basic salary, commission on sales, one-off discretionary bonuses and overtime if worked and paid regularly.
For their regulation 13A leave, you do not have to include commission, overtime etc, although many employers will probably choose to.
For staff who work irregular hours or who work for only part of the year, then for leave years that start after 1 April 2024 the easiest thing to do is to roll-up holiday pay and add 12.07 per cent to whatever their earnings are in the relevant pay period. If you do this then you just need to ensure their payslip identifies the element that is rolled-up holiday pay.
How does rolled-up holiday work in practice for an irregular hours’ worker?
Let’s take the example of a waiter, Steven, who works in a restaurant on a casual basis. He did 125 hours in June 2024 and was paid £1,500 gross at the end of June 2024. He was paid the £1,500 plus £187.50 being his rolled-up holiday pay based on 12.07 per cent of his monthly earnings.
In terms of holiday accrual, this is based on 12.07 per cent of hours worked so in June 2024 Steven built up 15 hours (being 12.07 per cent of the 125 hours Steven worked).
If a worker falls sick while on annual leave, can they swap their annual leave into sick leave?
Yes, they can. If you pay contractual sick pay, then you can include a rule in your policy that requires them to produce evidence of the sickness, even if they fall sick while on annual leave.
What are the rules around carrying forward annual leave for workers who are off sick from one holiday year to the next?
Employees may be off sick for extended periods that begin in one leave year and continue into another. If they are off sick, they continue to accrue annual leave. They could choose to take annual leave during a period of sickness, which does happen typically where they have run out of sick pay and want to be paid full holiday pay.
If at the end of a leave year they are off sick and have not used up all their holiday leave, then this up to four weeks of unused holiday leave can be carried forward. However, all carried forward leave must be used within 18 months of the end of the year when they accrued it. This issue often arises where someone has been off sick for many months, and then their employment comes to an end. The employer can be faced with a fairly chunky holiday pay bill that they will need to pay.
This is a complicated area of law that throws up lots of questions. It will be interesting to see how things develop further in this area over the coming years.
If you need assistance on employment matters relating to calculating holiday pay, get in touch with our expert employment lawyers today.
This article was first published on People Management website.
