Calculating holiday entitlements can be confusing for an employer. This is especially true if you employ full time, part time and variable hour employees. It can also be a headache if you have staff on zero-hour contracts. In this article we will share a guide for calculating holiday entitlement and pay. We will also look at the benefits of using a holiday calculator and HR software to make your life easier.
- Why Calculating Holiday Pay Can be Confusing
- How to Calculate Holiday Owed
- Holiday Pay: Full Time and Variable Hour Employees
- Holiday Calculator: Part Time Staff
- Factorial’s Holiday Calculator
- Calculating Holiday Owed with Time Off Software
Despite a number of high profile cases in the media over recent years, many employers are still making mistakes when it comes to managing time off and calculating holiday pay. Many calculate it based solely on basic pay, contracted salary and working hours. Some don’t include commission payments. For others, confusion arises when it comes to employees on part-time or zero-hour contracts. As an employer, it is important to get it right.
One important factor that has added to this confusion is the number of significant rulings over the past decade. The following cases have had an impact on the regulations for holiday pay and entitlement:
- Lock v British Gas Trading Ltd (2014): as a result of a claim filed by Mr Lock, a sales consultant for British Gas, the Court of Appeal determined that holiday pay must be calculated on the basis of commission earnings, not just basic salary. This ensures workers receive normal pay whilst on holiday.
- In the case of Bear Scotland v Fulton, which attracted a great deal of media attention, the Employment Appeal Tribunal (EAT) ruled that any overtime an employee is obliged to perform must be included in holiday pay calculations. However, this ruling only applies to the 4 weeks of annual leave provided for by the Working Time Directive. It does not apply to the 1.6 weeks of additional leave granted by the Working Time Regulations.
- A ruling by the EAT in 2019, as a result of the Harper Trust v Brazel case, clarified that holiday pay should not be prorated for staff who work only part of the year. This takes into account workers on short-term contracts, variable hour employees and staff on zero hour contracts.
Employees have the right to paid holidays (statutory annual leave) whether they work full time, part time or under a zero-hour contract. The number of days an employee is entitled to depends on many factors. How many days or hours do they work each week or month? What annual allowance do they have? What is the total number of holidays they have accrued?
Given that there are so many things to consider, the best way to be sure no errors are made is to use a holiday calculator. But before we look at how a holiday calculator could help you, let’s break down holiday pay and entitlement by employment contract.
The UK Working Time Regulations (1998) states that full-time employees are entitled to 5.6 weeks of holiday leave every year (28 days). For those employees on a fixed monthly salary, if they take a week’s holiday, they will receive the same pay at the end of the month as they normally receive. Generally speaking, calculating holidays for full-time employees is relatively simple. Issues only arise when an employee starts or leaves part way through the holiday year (a holiday calculator is an invaluable tool in these cases).
If an employee is part time and works fewer hours each week, they will receive less paid holiday allowance. They are still entitled to 5.6 weeks of paid leave, but in proportion to the hours that they actually work. This is simple enough if they work a set number of hours per week.
However, if an employee works variable hours then things can be a bit more challenging. In the past, an employer would look back at a worker’s previous 12 paid weeks, known as the holiday pay reference period. This reference period has now changed to 52 weeks. For those workers who have been working for less than 52 weeks, the reference period is the total number of weeks they have worked. Employers should be aware of this change as it could have a direct impact on the rights of their employees.
We’ve looked at full time and variable hour employees, but what about part time staff?
The entitlement for part-time employees is calculated pro-rata. So if, for example, an employee works 3 days a week, they would be entitled to 3 x 5.6 = 16.8 days of holiday entitlement per year. If your employees get contractual holiday allowance on top of their statutory entitlement, this needs to be calculated pro rata for part time employees too. The same goes for bank holidays. A good holiday calculator can help you work out statutory holiday leave in days or hours for part time staff. With most, you can calculate for a full year or a pro-rata value for any part of the year.
At Factorial, we have designed a free holiday calculator to save you time and help you avoid errors. You can use our holiday calculator to work out prorated annual leave entitlements for part-time staff. You can also use it to calculate holiday allowances for employees who start or end their employment with you in the middle of the year. Just enter how many days a week an employee works, what your holiday entitlement is for a full-time employee, and whether or not they started accruing holidays part way through the year, and we will do the rest! No more headaches and no more wondering if calculations are right for all employees. A holiday calculator helps you ensure you comply with all related regulations.
Aside from using a reliable holiday calculator, the most important thing to consider when it comes to calculating holiday entitlement is time off. If you have a range of contract types, this can be a time-consuming and complex process. And your holiday calculations won’t matter if you are not 100% sure what hours each employee works. They also won’t be worth anything if you have no reliable record of how much time off an employee has already taken.
The best way to make sure your holiday entitlement calculations are accurate is to implement a software solution. This will simplify the process and save you time. It will also help ensure you are maintaining accurate and reliable data for all your employees.
With Factorial’s Time Off Software you can keep track of all the data you need. Our software solution acts as an automated holiday entitlement calculator for your organisation. It also provides a useful platform for staff to make holiday requests and track their remaining holidays. Armed with our free holiday calculator and our unique software solution, headaches from calculating employee holidays will become a thing of the past. Instead, you can rest assured that data is reliable and accurate and each employee receives the right paid holiday allowance.