With the sheer scale of recent employment law changes and those still to come, it can seem a daunting challenge to keep up-to-date. Here we aim to provide employers with a straightforward guide to the key things you need to know about employee holiday entitlement, in the light of those recent legal changes.

Specifically, we will be looking at:

  • How to calculate annual leave entitlement for full-time, part-time and variable-hours workers
  • Key areas for employers to bear in mind.

The Basics of Holiday Entitlement

For all employers, the first thing to bear in mind when considering holiday entitlement for workers is who is legally entitled to what? So here are the basics:

Who is Entitled to Statutory Annual Leave

  • Employees employed under a contract of employment. This includes employees on permanent, fixed term, annualised hours and term time-only contracts.
  • Casual and zero-hours workers

What is the Statutory Holiday Entitlement

Thanks to the Working Time Regulations, all full-time workers in the UK are entitled to 20 days of statutory annual leave and 8 days of Bank and Public Holidays per year. In simple terms, this equates to 5.6 weeks of statutory annual leave and Bank Holiday entitlement per year. As an employer, you can offer more than this if you wish, but this is the absolute minimum you must give. Because the Working Time Regulations define annual leave as a Health and Safety measure to ensure workers get adequate rest, it is unlawful to pay workers in lieu of any of their statutory annual leave entitlement unless they are leaving the business.

Holiday Entitlement for Part-Time Workers

Part-time workers are entitled to the statutory minimum figure on a pro rata basis.  For those who work the same hours on the same days, you can, with ease, calculate their pro-rata entitlement in days.

However, if you have part-time workers who work different hours on different days, it may then be easier to calculate their holiday entitlement in hours.

As an example, Fred works 17.5 hours per week, as follows:

  • Monday            7 hours
  • Thursday          7 hours
  • Friday               3.5 hours

As mentioned above, his statutory holiday entitlement (including Bank Holidays) is 5.6 weeks, which is the equivalent of a full-time worker.  We then need to pro-rata this entitlement based on his working hours of 17.5 hours a week.  To do this, multiply 5.6 weeks by the hours worked per week.  In this example, the worker is given 98 hours a year. The reason for calculating it in hours is because if Fred takes a Monday or Thursday off, that’s 7 hours deducted from his entitlement. If he takes a Friday off, however, that’s only 3.5 hours deducted from his entitlement.

It is important to remember that there is no automatic legal right in the UK to take time off for Bank and Public holidays.  Part-time workers are entitled to the 8 normal bank holidays, and this is included in the 5.6 weeks statutory entitlement. If an employer fails to calculate a part-time worker’s bank holiday on a pro-rata basis but instead allows the part-time worker to take paid leave on all the Bank Holidays in the year, the part-time worker will end up with more leave entitlement than a full-time worker, based on the pro rata entitlement.

In Fred’s case, for example, as he doesn’t work on a Monday anyway, he’d end up getting at least 4 days of Bank Holiday entitlement in a year over and above his entitlement, plus any additional Mondays when one of the Christmas Bank Holidays lands on a Monday.

Part time employees should always be advised by their employer to allocate all the Bank Holidays which fall on their normal working days first from their total annual leave entitlement, before booking any other type of annual leave.

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Leave Years and Carrying Forward Holiday

An employee’s leave year should be stated in the contact of employment. Anyone joining or leaving the company part way through the leave year is entitled to annual leave calculated on a pro rata basis for the time employed during the leave year.

Any statutory annual leave not used by the end of the leave year cannot be carried forward into the next leave year except in very exceptional circumstances, which have meant it was not possible to use the leave. Such examples include an employee on maternity or adoption leave or an employee who was absent due to long-term sickness and who hadn’t requested to use some of their annual leave during the period of absence. Any carry-over holiday from one leave year to the next due to such reasons must be used by the worker within 18 months of the end of the leave year in which the carry-over holiday accrued.

New legislation updates in 2024 have put more responsibility on employers to ensure workers are taking their annual leave.  Employers are now required to actively inform workers of the ‘use it or lose it’ nature of their policy and provide reasonable opportunities to take their leave.  It is therefore important to ensure you have processes in place which monitor holiday usage throughout the leave year and actively encourage employees to take their leave.

If an employer offers more annual leave entitlement than the statutory minimum, then they can allow the employee to carry forward the additional leave. For example, if an employee’s contract states they are entitled to 25 days’ annual leave plus bank holidays, the employee could request to carry forward up to 5 days’ annual leave into the following leave year. It’s a good idea to state a time limit in the contract by which the carried forward leave must be used. Again, this should be monitored throughout the leave year.

Holiday Entitlement for Irregular or Part-Time Workers

If you employ workers on variable hours, there are two options for calculating their holiday entitlement. This depends on when your leave starts, as the legal position changed on April 1st this year.

1. For leave years beginning on or after 1st April 2024:

If the company offers 5.6 weeks of statutory annual leave and Bank Holiday entitlement, workers on variable hours accrue annual leave and Bank Holiday entitlement at the rate of 12.07% of hours worked in a pay period. The 12.07% figure is based on the statutory entitlement of 5.6 weeks divided by 46.4 weeks (i.e. 52 weeks less the 5.6 weeks).

If the company offers more than the statutory 5.6 weeks’ entitlement, the percentage figure will be higher. So, for example, if an employer gives 25 days of annual leave per year plus the Bank holidays, this gives a total of 33 days’ leave per year. 33 days divided by 5 days gives 6.6 weeks’ entitlement. The percentage figure for workers on variable hours is, therefore, 6.6 weeks divided by 45.4 weeks = 14.54%.

2. For leave years beginning on or before 31st March 2024:

Workers on variable hours contracts for a company whose leave year began on or before 31st March 2024 are entitled to 5.6 weeks paid annual leave, which should be based upon the average hours worked in the previous 52 weeks. They are entitled to this even if they had some weeks in the year when they didn’t work.

From your next holiday year, this will be simplified, and these workers can be moved onto the 12.0% rule, as explained above, for calculating accrued holiday.

Holiday Pay Calculation

Workers with regular hours are entitled to be paid their ‘normal’ pay when absent on holiday. This legal entitlement only applies to the 20 days of statutory annual leave, but most employers find it administratively simpler to apply this rate to the 8 Bank Holidays as well. ‘Normal pay’ includes basic pay plus any regular overtime and/or bonus payments they would have received if not on annual leave.

Workers with variable hours should have their holiday pay calculated based on the average weekly pay across 52 weeks. If there have been weeks in the previous 52 weeks when the employee did not work at all, the employer should go back to the previous week in which the worker was working to make up the full 52-week average. An employer is only required to go back a maximum of 104 weeks to find enough weeks to make up the 52-week average.

If a worker only joined the company part way through the year, then employer need only count the period during which the worker was employed.

Special Case of Holiday Entitlement

1. Employees on probation

Employees who are on a probationary period will accrue holiday entitlement from their first day of employment. An employer can restrict when the accrued holiday is taken e.g. not allowing an employee on probation to take more annual leave than they have accrued, but this requirement should be stated in the contract of employment.

2. Maternity / Adoption / Shared Parental leave

Employees who take Statutory Maternity, Adoption or Shared Parental Leave of up to 52 weeks will continue to accrue holiday throughout their absence, as the contract of employment remains in place during this period. It is a good idea to discuss when the employee wants to take this leave well in advance of the leave starting. An employee could take some of the leave before the period of maternity or adoption leave commences, even though they won’t have accrued it at this stage. This is because they will remain employed while off work, so the accrual of the leave is guaranteed to happen.

Can an Employer Dictate When Someone Takes Their Holiday?

Yes, there are a couple of ways in which this can happen.

If the employer has a shutdown period during the year, e.g. during the summer or between Christmas and New Year, the employer can state that the employee must allocate a specific number of days from the annual leave entitlement to cover the shutdown period. This should be stated in the contract of employment and should be applied as early in the year as possible, taking into account the rule below.

If unexpected circumstances arise, such as a shortfall in work, and the employer wants employees to take annual leave for a period, they can give notice to the employees that the holiday is to be taken. The employer must give twice as much notice as the amount of leave they require the employee to take, so a two-week holiday will require four weeks’ notice from the employer, for example.

Employee holiday law is surprisingly complex, and it changes regularly. If you have any queries about holiday entitlement or how to calculate it, contact MAD-HR.