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Calculating Holiday Pay and Entitlement

The working time regulations provide workers a statutory entitlement to paid leave. This article looks specifically at how to calculate leave entitlement and pay when there are no regular hours or patterns of work. This would commonly apply to those working under zero-hours contracts, casual worker agreements, or various forms of part-time hours.

Guidance

The working time regulations provide workers the right to a total of 5.6 weeks annual leave (made up of 4 weeks basic annual leave and 1.6 weeks additional). 5.6 weeks equates to 28 days a year and can include the basic entitlement to time off for bank and public holidays. Employers can choose to award more annual leave if they wish.

For those who do not have any normal working hours, or who work part year, there is no special provision in the working time regulations. These workers, and other part time workers are still entitled to the 5.6 weeks leave, just like a full-time worker.

However, the regulations do not define what is meant by a week’s leave. It is understood though that in practice, a worker must be away from work for a week as they know it. So for somebody who is part time, and works for example 3 days each week; then their week’s entitlement would be 3 days. Multiply the 3 days by the 5.6 would give them their entitlement for the year (in this example, it would be 16.8 days).

It is often recommended for somebody who works part time, or irregular hours or part year, to calculate the entitlement in hours as it is easier to calculate and manage.

This example is straight forward, but what happens when somebody works irregular hours that vary each week, or the employee has gaps between the periods in which they work, such as those on casual agreements?

Unfortunately, there is no guidance or recognised formula in the Employment Rights Act or Working Time Directive on how to convert the statutory annual 5.6 weeks holiday into days or hours, although there is case law, we can refer to in order to calculate in a reasonable and fair manner.

Employment appeal case: The Harper Trust v Lesley Brazel & Unison 2019

In this case, the Court of Appeal dealt with the question of whether a worker who only works part of a year should be entitled to the full annual statutory leave entitlement of 5.6 weeks. The claimant was only being given holiday based on her actual working time, which was during term time only.

The Harper Trust used a common formula to determine her holiday entitlement for the year (12.07% of her hours worked, i.e., 12.07% of her working 10 and 15 hours a week during term time only).

The Harper Trust argued that by calculating the employees’ hours over a 52-week period would give her favourable treatment compared to those who worked a full year, in fact, they calculated that for the hours Brazel worked, she would be benefiting to holiday entitlement equivalent to 17.5%, significantly more than the annual 12.07% of her actual working time.

However, the employment appeal tribunal ruled that she should in fact receive holiday entitlement calculated across a 52 week period, rather than only for hours worked part year, meaning that the 12.07% was unlawful.

They highlighted that to continue using this formula would mean a worker suffering a detriment, which is unlawful under the Part Time Worker Regulations. Whereas, to calculate holiday over a whole year, whilst it would enhance her entitlement, there is nothing within the part time or working time regulations to say favorable treatment is not allowed! Interestingly, the judgement has now escalated to the supreme court for a final review and we wait the judgement.

As a result of this judgement, the legal position is that this 12.07% should not be used for those working irregular and variable hours as it has shown to be detrimental. Instead, entitlement should be calculated over a 52 week period.

As a result of the judgement, legal commentators recommended that for those workers with variable hours and in any situation whereby the 12.07% gives a different result, an employer will be liable for the difference. The Supreme Court heard the appeal at the end of 2021, and we are awaiting judgement as to whether this position will stand.

How did the formula of 12.07% come about?

The 12.07% was identified because for each holiday year, a worker is entitled to 5.6 weeks leave, and so to take this amount of leave away from a full year leaves you with an amount of time in which a worker is available to work (52 – 5.6 = 46.4 weeks).

To then calculate a percentage of holiday based on somebody’s irregular hours, you divide 5.6 (the annual entitlement) by the number of available weeks they have in which to work (46.4) and multiply by 100 to give you the percentage to use (12.07%).

However, considering The Harper Trust v Lesley Brazel & Unison case of 2019, the legal position is that this 12.07% should not be used for those working irregular and variable hours.

Summary of entitlements for those working irregular hours

  1. Holiday entitlement must always be based on actual hours worked, and not on an average number of hours worked.
  2. People working irregular hours are entitled to paid time off for every hour they work, therefore you accrue your holidays pro-rated to the full-time equivalent. For each hour you work, you accrue holiday.
  3. Workers are entitled to a week’s pay for each week of statutory annual leave they take. The entitlement is pro-rated. For workers with no fixed hours, a week’s pay is based on the average days or hours worked each week based on the representative reference period of 52 weeks (see below).
  4. Part time workers have the right to not be treated less favourably than a comparable full time worker. However, it is not unlawful to treat them more favourably, as the case illustrates.

How to calculate holiday entitlement for somebody working irregular hours:

  1. Holiday entitlement must always be based on actual hours worked, and not on an average number of hours worked. They earn holiday for each hour worked.
  2. For practical reasons, it is recommended to manage holiday monthly, as it is likely that you will know the required hours needed to be worked in the month ahead.
  3. Those who work irregular hours are entitled to 28 days pro rata depending upon the number of hours worked.
Example:

·        A full-time employee works 8 hours a day. 

·        There are 2080 full time working hours in a year (8 x 5 x 52 = 2080)

·        The company provides the statutory minimum of 28 days holiday each year

Hours worked each day by a full-time employee 8 hours
Full time employee holiday entitlement in hours for the year 224 hours (8 x 28)
Full time employees monthly holiday entitlement 18.66 (224 divided by 12)
Number of hours to be worked in November by the employee who works irregular hours 20 hours in the month
Holiday entitlement for the month of November when working a total of 20 hours 224 / 2080 * 20 = 2.15 hours
Holiday pay due for November Hourly rate (using guide below) x November’s holiday entitlement

How to calculate average pay:

Holiday pay is calculated by using an averaging method. This averaging method from a pay perspective would mean looking back over a 52-week period as follows:

  • Look back over 52-week period and discount any weeks in which no remuneration is earned (where employed less than 52 weeks, look back over the period of complete weeks for which they have been employed)
  • Count 52 weeks from only those weeks in which remuneration is earned including holiday pay
  • If the amount earned is reduced in a week due for example statutory sick pay, use another week where usual pay has been received
  • You may need to look back up to a period of 104 weeks before the period of leave to take account of any discounted weeks so that you overall you still average 52 weeks for the calculation
  • Calculate the average weekly remuneration (including regularly paid overtime, commission, or bonuses)
  • Where hours are not the same; find the average weekly hours over the 52-week period
  • Pay for a week’s leave will be based on the average weekly hours multiply by their current hourly rate
Example:

·        The employee will work 20 hours in November

·        The monthly holiday entitlement is 2.21

·        Over the last 52 weeks, the employee’s average hourly rate has been £8.91

Holiday pay due for November £8.91 * 2.15 = £19.16 in holiday pay due

 

Holiday pay & entitlement calculator

We’ve created a Holiday Pay & Entitlement Calculator to help you to calculate employees’ holiday based on your requirements. You can download it here: Holiday Pay & Entitlement Calculator.

Further Information

If you would like HR, Payroll, or Health & safety support, please contact us or get in touch with us on 0844 324, 5840 and speak to a member of the team.

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