A Guide to the Calculation of Holiday Pay for Employees

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This guide is intended to give practical assistance to employers in operating holiday pay for their employees.


Introduction


Under the Working Time Regulations 1998 employees are entitled to 5.6 weeks paid annual holiday, which equals 28 days for someone working 5 days per week. There is a cap at 28 days though, if an employee works a six day week.


Of course an employer is entitled to exceed this minimum on a contractual basis.


The contract of employment should be worded carefully to ensure that it is clear whether Bank Holidays are in addition to a stated entitlement, or form a part of.


Part-time Employees


Part-time employees are entitled to 5.6 weeks of annual paid holiday. But in this instance there needs to be a calculation of what hours constitute the 5.6 weeks.  For example someone that works ten hours per week, will be entitled to ten hours of holiday and holiday pay for each of the 5.6 weeks taken.


To make this calculation easier or more understandable, it can be expressed in hours, days or weeks.


Calculating the Rate of Pay


A weeks pay is what an employee can expect to earn in a week. This is straightforward for employees that work equal hours each week. Generally it is their annual pay divided by 52.


For employees whose hours vary a week’s pay is taken to be the average of the previous 12 weeks, prior to the holiday being taken.


For casual employees it may be easiest to calculate holiday pay based on the percentage 12.07% applied to worked hours. However rolled up holiday pay, integrated into the basic rate, is illegal, and holiday pay should be paid at the time taken.


As overtime hours do not form a basic element of the contract, they are disregarded, unless they are a contractual right.


Payment In-lieu of Holiday


Payment in lieu of holiday is not permitted, except at the time of termination of employment.  And holiday entitlement is calculated until the last day of employment.


However it is permitted for an employer to allow an employee to carry forward 1.6 weeks of holiday into the next holiday year.


Agreement of Holiday to be Taken


An employee must give notice of at least twice the length of holiday wished to be taken. Conversely the employer can give refusal for the time to be taken, so long as the notice period of this is equal to or longer than the holiday duration requested.


Employers can also contractually require holiday to be taken, or not taken at particular times.


For a definitive guide on holiday rights the following sites should be consulted.


Direct Gov


Business Link

Acas



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