Legal Article - Employment Law

Annual Leave and Holiday Pay

Under the Working Time Regulations 1998 (as amended) all employees are entitled to annual leave, each year of 5.6 weeks. This is equivalent to 20 working days, and the 8 usual bank and public holidays we have in the UK each year. This is the statutory minimum employees are entitled to.

A week is the equivalent to a standard full time working week, i.e. 5 days. If an employee works a 6 day week for example, they are not entitled to a higher entitlement. You can, however, offer contractual holiday entitlement over and above the minimum entitlement, if you wish to, this is of course discretionary.

This applied to all employees (not self employed persons), and will begin to accrue from the first day of the employees employment.

An employee must be made aware of their holiday entitlement when they commence their employment, by way of a Section 1 Statement of Terms and Conditions of Employment, or full Contract of Employment. This is a legal requirement and the contract should be clear enough, that the employee can calculate their exact entitlement, at any given point in the leave year.

1. How do you calculate leave part way through a leave year?

How do you calculate leave if someone begins or ends their employment part way through a leave year?


Employers will usually have a leave year in line with the calendar (Jan-Dec) or the financial year (April – March). However they can choose any time in the year. If the employer failed to denote a clear leave year, the employee is entitled to assume it commences from when they begin their employment, and that date will form their anniversary date for holiday entitlement.

If an employee commences employment with you part way through a leave year, then they will accrue their holiday at a rate of 1/12th each month.

If employment is terminated part way through a leave year then employees should be paid in lieu of any holidays they have accrued and not yet taken.

Alternatively, if the employee has taken more holiday than they have accrued at the date of termination, the employer is entitled to deduct sums from the employee’s final wages to cover these days, as the employee will have received an overpayment of wages.

2. What about if we are open on Bank Holidays?

What about if we are open on Bank Holidays?


If you are open on bank holidays and you want your employee to be available to work on these days, this must be clearly denoted in the employees contract of employment (hyperlink to contract doc). If an employee therefore has to work on a bank holiday, they will still be entitled to take the 28 days annual leave, just at another time.

3. What about employees who work part time?

What about employees who work part time?


Annual Entitlement for part time staff (those with fixed days/ hours each week) is a percentage of the maximum entitlement. For Example:

i. A works 3 days a week, every Monday, Wednesday and Friday. They are therefore entitled to 3 days for each of the 5.6 weeks entitlement, totalling 16.8 days.

ii. B Works 2 days a week, every Tuesday and Wednesday. As their normal working week does not consist of a bank holiday day, they are not entitled to the portion of entitlement allocated to bank holidays. They will therefore be entitled to 2 days for each of the 4 weeks entitlement remaining, totalling 8 days.


4. What about employees who do not work regular or set hours?

What about employees who do not work regular or set hours?


C works 10 hours in the first and second week of the month, 5 in the third and 0 in the last. Their rate would be worked out by the number of annualised hours they worked. This is worked out using the following :

Firstly using the figure of 12.07% (this is the percentage of the working year that is taken by holiday entitlement, i.e.5.6 weeks / 46.5 days = 12.07) as the percentage of holiday in one year.

This is then divided by 100 and then multiplied by the number of hours worked in that week so in B’s case; 12.07/100x10 = 1.21 minutes. This will therefore be C’s accrued holiday entitlement for that week.

Over the 4 week period above C will therefore accrue the following;

Week 1: 12.07/100x10 = 1.21 minutes

Week 2: 12.07/100x10 = 1.21 minutes

Week 3: 12.07/100x5 = 0.60 minutes

Week 4: 0 minutes as no hours have been worked.

Therefore over the 4 weeks C is entitled to 3 hours holiday pay. If C chooses to take a day as holiday then they will be paid for 3 hours. If you can roughly annualise this for the year i.e. saying they work an average of 7 hours every week then the calculation will be made easier for you, as they will accrue the same number of minutes every week i.e. 12.07/100x7=0.84 minutes which over a year equate to 44 hours.


 


5. Can I restrict when leave is taken?

Can I restrict when leave is taken?

Under the Regulations, an employee should never be deterred from taking annual leave, or paid in lieu of any annual leave. Employers can make it clear in their contract of employment, if there any period of the year in which they cannot take annual leave, because it’s a very busy time of the year of the employer. However, if this is not expressly stating in the contract, annual leave cannot be refused.

If an employee does not use all of their annual leave entitlement during a leave year, they are not entitled to carry this over to the next year, and will lose any outstanding entitlement. The only expectations to this are when leave cannot be taken because the employee is taking Shared Parental Leave or is on long term sickness.

If an employee leaves your employment part way through a leave year, they are entitled to paid for any days annual leave they have accrued but not taken.

6. How much do I pay the employee when they are on holiday?

How much do I pay the employee when they are on holiday?

Since the decisions in Bear Scotland -v- Fulton (14) and Lock –v- British Gas Trading Limited (14), the way in which employers pay holiday pay has changed.

Under the EU Directive, workers should be entitled to their ‘normal pay’ when taking annual leave. Previously this was interpreted into National Law as meaning the employee’s basic wage only. However the Tribunal has ruled that this is unfair, and from this case has deemed that an average of the employees overtime and commission should now be included (averaged over previous 12 weeks) in any holiday pay.

It is worth noting at this stage that this will only apply to the first 4 weeks of the employee’s annual leave, as this is the minimum holiday allowance given in the EU Directive. The additional 1.6 weeks given under National Law and any additional annual leave you give to your employees over and above the statutory minimum will not be subject to this ruling.

At present it is inferred that this will only be implemented for mandatory overtime, as the ruling states nothing about voluntary overtime (unless regularly worked). However this may alter at a later date.

We therefore at this stage are recommending that you commence paying employees in this manner, as neither case has yet been appealed.

In order to be fair to all employees and stop employees from ‘cherry picking’ when it will more profitable for them to take annual leave, we recommend that you work out an annual average for each employee over a 12 month period. This will then give you a set figure which will be applied throughout that leave year each time that employee takes annual leave.

You should then review and renew this figure when the next leave year commences.

If an employee commences employment with you part way through a leave year, then the 12 week average can be used, until the employee has completed their first 12 months of service.


7. How to I deal with claims for backdated holiday pay?

How to I deal with claims for backdated holiday pay?

The ruling made it clear that the UK law is incorrect and as such employees are entitled to backdate their claim to previous periods of holiday pay.

However, the Tribunal have limited that period of backdating to a maximum of 2 years, and only when there is a break of less than 3 months in a ‘series of underpayments’. If there is a period of more than 3 months where holiday has not been taken, that will break the chain and thus backdating will cease from that date.

In essence, this means that the employee will have to trace back to each period of holiday they have had, and if this holiday is taken within 3 months of the last one, they can go further back, until there is a break of more than 3 months:



An employee takes the following holiday over an annual leave year;

13 January – 20 January – Paid on 28 January 2014

14 April – 16 April – Paid on 28 April 2014

5 May – Paid on 28 May 2014

16 June – 23 June – Paid on 28 June 2014

20 August - 27 August – Paid on 28 August 2014

20 October – 22 October – Paid on 28 October 2014


The employee would be able to back date up to the leave taken on 14 April 2014, as this is where the chain will break, due to there being more than 3 months since there previous holiday period.



Remember
these rules will only apply to the 4 weeks annual provided for in the EU Directive.

 

In the above scenario, if it is deemed the employee takes their core 4 weeks entitlement first, the date of the first unlawful deduction would be on 28 October 2014, as this is the first day of the employees additional 1.6 days leave. In the above scenario it would not alter when the break in the chain occurred.


 


 


 

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Published: 07 Jul 2015

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