How to calculate holiday entitlement

Holiday, or annual leave, first became regulated in 1998 with the introduction of the Working Time Regulations. That allowed employees to have 20 days holiday each year, which included the bank holiday proportion of 8 days. In 2007 the Working Time Regulations were amended to add the 8 bank holidays onto the 20 days, giving everyone 5.6 weeks statutory holiday each year. Therefore, when calculating holiday entitlement when someone leaves or joins an organisation, the calculation must be made on the basis of 5.6 weeks (or 28 days for a full time member of staff). So many payroll staff are still not aware of this and are calculating holiday entitlement for full time staff on the basis of the 20 days because they do not believe it is necessary to include the bank holidays. Whilst most payroll staff are including a proportion of bank holidays for part time staff, which is correct, they are not doing the same for full time staff.

Where organisations do not recognise bank holidays, such as in the retail or hospitality sectors, full time staff simply add those days to their entitlement to take at a more suitable time of the year. Therefore when calculating holiday upon leaving or joining, it is even more important to include the bank holiday element into the calculation so that every member of staff has their holiday calculated on the basis of 5.6 weeks holiday. Where staff are part-time, their holiday should be calculated on their pro rata element, which must enable them to also take the equivalent of 5.6 weeks holiday per year.

An accounting change has meant that companies who have a turnover of over £3m per year need to show any outstanding holiday entitlement as a liability in their year end accounts. This has prompted many of our clients to change their holiday year back to April to March, when before their holiday year was January to December. This change has meant that they are again affected in years where there are two Easter holidays within one holiday year. In these situations ten bank holidays will be taken in that year, leaving only six bank holidays to be taken in the following holiday year. Because the entitlement is to 5.6 weeks annual holiday, those employers who only offer the statutory minimum holiday will be required to provide an extra two days holiday in the following holiday year. If contracted holiday is over and above the statutory minimum of 28 days (for full time staff), and it covers the extra two days, then this will not be an issue.

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