As a small business owner, calculating holiday entitlement for new starters can feel like a daunting task – especially if you have staff who work part-time or have irregular hours.
But don’t worry, once you get your head around the calculations it’s much easier than you think. Here’s everything you need to know.
What does the law say?
UK law states that employees are entitled to 5.6 weeks’ annual leave per leave year, which equals 28 days for full-time employees.
This is made up of:
- A minimum of four weeks’ annual leave as required by EU law
- An additional 1.6 week’s annual leave which represents the number of UK bank holidays
Part-time workers are also entitled to the same leave as full-time workers proportionate to their hours worked, this is often referred to as ‘pro-rata’.
Regardless of working hours, all workers are entitled to holiday from their first day of employment.
So, how does this work?
There are two parts to holiday which are calculated separately.
- Calculate how much holiday someone is entitled to take
- Work out how much someone is entitled to be paid whilst on holiday
However, there are various types of employees, so you need to use different calculations for each.
Here’s how to do the calculations.
1 – How do you calculate holiday leave?
This is very easy to calculate – all full-time workers are entitled to 5.6 weeks of holiday every year, which legally you must provide as an absolute minimum.
So, when working out holiday pay for a full-time worker you take the minimum statutory entitlement of 5.6 weeks a year and multiply it by five which gives you 28 days. If you have any employees who work six days or more, their entitlement is still capped at 28 days.
Part-time workers are also entitled to 5.6 weeks holiday, so this means in practice you multiply 5.6 by the number of days they work per week to get their entitlement.
For example, if they work four days a week, the calculation is 5.6 x 4 which gives them 22.4 days. This should then be rounded up to the nearest half day making their holiday entitlement 22.5 days.
Factoring in things like bank holidays for part-time workers is where things get tricky.
What happens when an employee doesn’t work on the days that bank holidays fall?
As an employer you need to make sure all part-time employees benefit from bank holiday leave, even if they don’t normally work bank holidays. The easiest way to deal with this is to add bank holidays to their leave and pro rata it down.
For example, Company A have a holiday year running from April 1, 2020 to March 31, 2021. The eight bank holidays fall on the following days:
- Friday April 10, 2020
- Monday April 13, 2020
- Friday May 8, 2020
- Monday May 25, 2020
- Monday August 31, 2020
- Friday December 25, 2020
- Monday December 28, 2020
- Friday January 1, 2021
Samantha works three days a week on Monday, Tuesday and Wednesday and has an overall entitlement of 17 days but will find that four of those days are fixed bank holidays and therefore only 14 days of her entitlement are floating days to be taken when she chooses.
What about part time workers who work different hours on fixed days?
If this happens then holiday leave should be calculated in hours, not days, because employees could take their holidays on days they work longer.
To calculate the total leave you simply multiply their weekly hours per week by 5.6 to get their hourly entitlement.
Casual workers and employees with irregular hours workers
For employees who work varied hours holiday entitlement should be calculated on an accrual basis, because their irregular working pattern makes it difficult to predict their entitlement. This is because you cannot calculate, in advance, the employee’s annual holiday entitlement in days or hours, without knowing at the beginning of the year how many days or hours they’ll work.
Due to this your best bet based on the current law is to calculate holiday in hours using the accrual method, and review at the end of each holiday year, and at the end of a contract, to check that workers have had and been paid for the correct amount of holiday.
2 – How do you calculate holiday pay?
When your employees are on fixed hours and salary, take a week’s holiday, they should receive the same pay on payday that they’d normally receive.
This becomes much trickier when someone doesn’t work fixed or regular hours and so doesn’t receive the same amount of pay each pay day.
How do you calculate a week’s pay for more flexible workers?
If you’ve got a worker whose weekly pay varies, the holiday pay they receive will be their average pay over the previous 52 weeks worked. In those 52 weeks your worker must have been paid, so exclude any weeks where they weren’t paid. You may therefore need to go back more than 52 weeks to ensure you cover the full period where pay was received.
3 – How do you calculate holiday pay for a new starter?
Whether you’re calculating holiday for new starters or leavers, the process is a relatively simple one. Of course, the specifics of how you work out holiday entitlement will vary according to your company’s employment contract.
This is calculating the pro-rata entitlement. You either calculate this monthly, or by the actual or working days remaining in the holiday year.
To calculate it monthly you divide the total holiday allowance by 12 and then multiply by the number of months worked. For example, 28 days holiday / 12 = 2.33 days of holiday accrued for each month worked.
However, not everyone will start or leave at the beginning of the month, so at time you will need to calculate holiday more specifically. There are two methods that can be used. The first is the actual (i.e. 365 days or 366 on a leap year) days in a year simply work out the number of days between the start date and the end of the year. Then divide this number by 365 (or 366) and multiply by 100 will give the percentage of the full year entitlement that is owed.
But it is more common to calculate holiday by the actual working days in a year (e.g. 165 days). Simply work out the number of working days between their start date and the end of the year, then divide this number by 260, multiply by 100 which again gives you the percentage.
Jane Mason is HR operations manager at Citrus HR.