How to calculate holiday entitlement
We spend a lot of time helping both employers and payroll staff understand how to calculate holiday entitlement, particularly with those who are starting or leaving their employment. We thought that other employers may benefit from this guidance, so below is how to do it correctly.
Holiday, or annual leave, first became regulated in 1998 with the introduction of the Working Time Regulations. That allowed workers 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). Many employers and some 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 always 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.
Holiday is accrued on a daily basis from the day someone starts work with you and should therefore be calculated on a daily basis when starting or leaving. The number of days over which the calculation is made will also change depending upon the work pattern. We calculate holiday to the nearest half day and it is important to note that holiday can be rounded up, but should never be rounded down.
Carrying holiday over
We also have lots of conversations with clients about carrying holiday over into the next holiday year. Only holiday entitlement that is over and above the statutory amount of 28 days can be carried over in the next holiday year. The Working Time Regulations were brought in as health and safety legislation, because it was deemed to be really important that workers take time away from work to have relaxation time. The view was that tired workers become unsafe and with more and more people working from home in some capacity in recent times, it has become even more important that people take time away from their desks, whether they are at home or in the office.
The only time statutory holiday can be carried over is when someone is on long term sick leave and on maternity or adoption leave and they are unable to take their holiday before the end of the holiday year.
Some people do not always want to have their holiday but it is really important that as the employer, you make sure that people take their holiday during the year so that it is not all left to take at the end of the year. If, for those that don't want to take it, holiday is spread around a long weekend, or a week per quarter, it breaks it down and makes it easier for them to take it. The health and safety of the workforce is the employer's responsibility and holiday is as much a part of this as other health and safety requirements.
An accounting change a number of years ago 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 prompted many of our clients to change their holiday year back to April to March, from a holiday year of January to December.
This change has meant that they are once again affected in years where there are two Easter holidays within one holiday year, rather than one. In these situations ten bank holidays will be taken in one 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.