Holiday entitlement and pay
The current statutory minimum entitlement is 28 days per year including statutory days.
This is for an employee working 5 days or more each week.
Contracts of employment should detail how holiday entitlement is accrued, how pay is calculated, timing and approval of holidays and any conditions arising on termination of employment.
Annual leave accrues in advance at the rate of one twelfth of the annual entitlement on the first day of each month of employment.
For example, if an employee begins work on 1st April and has 28 days’ holiday per year, the entitlement is 2.33 days per month.
By 1st May, the employee will be entitled to take 4.7 days (for April and May).
Typically, entitlement is rounded up, so in this example, it would be 5 days.
Entitlement should not be rounded down.
Where accrued holiday pay has to be calculated, for example when an employee leaves, entitlements of a fraction of a day are rounded up to the nearest half day.
This statutory accrual system in advance does not apply to the calculation of entitlement to pay for leave not taken at the end of the period of employment, i.e. employers need only pay for untaken entitlement for each complete month worked.
Employers may refuse to allow employees to take leave during the first months of service, provided that this does not prevent employees from taking leave before the end of the holiday year.
Statutory minimum holiday entitlement does accrue even when a worker is off sick and a worker can take this paid annual leave during a period of sick leave.
If an employee is injured or ill prior to going on pre-arranged annual leave then the employee can request to take their annual leave at a different time.
A number of employment tribunal decisions have recently changed the way in which holiday pay should be calculated.
Case law has determined that normal and regular voluntary overtime, commission, productivity bonus payments, standby shift allowances and call out payments must be included in all holiday calculations if the payments are “regular”.
This is when calculating holiday pay for the first 20 days’ statutory holiday.
Companies for ease and clarity may decide to adopt the same pay rate for the full 28 days.
When looking at any payment other than basic salary, the starting point for deciding whether it should be included in holiday pay is to ask whether the payment is what the employee would “normally” get for working.
Is the allowance or pay supplement intrinsically linked to the work a worker does?
If it is, it should be included.
Employers paying overtime, commissions or allowances must evaluate the implications of the recent case law for their existing holiday and working arrangements, and agree or implement changes to ensure ongoing compliance.
Failure to do may result in grievances and claims.
Workers can bring claims for underpaid holiday going back two years.
Any claim would have to be brought in the Employment Tribunal within 3 months of the last deduction (i.e. the last underpayment of holiday pay).