Legally you must pay paid holidays to the people who work for you. This includes freelancers, agency workers, temporary workers and part-time workers. Most people you employ must get a minimum of four weeks’ paid annual leave a year. Part-timers get leave proportionate to the amount of days they work each week.
Disagreements about holidays and holiday pay are common, and can lead to poor morale at work, or even complaints to employment tribunals. To prevent misunderstandings entitlements should be clearly set out in writing, either in the employee’s written contract, if they have one, or the written statement of employment. The written statement is a legal requirement and must be given to each employee no later than two months after the start of employment. The written statement should contain sufficient detail to enable the employee’s entitlement to be precisely calculated, including any entitlement to accrued holiday pay on the termination of employment.
The Working Time Regulations 1998 sets down the minimum annual leave allowance, although some employers pay more than the minimum in order to keep staff happy and motivated. Another incentive to retain good staff is to add on extra holidays after a certain period of employment.
If someone works five days a week for you their minimum entitlement is 20 days annual leave, while a part-timer who works three days a week is entitled to 12 days a year.
There is no automatic right to take bank holidays off and the minimum leave period can include bank holidays. As an employer you can set the times that workers take their leave, for example for a Christmas shutdown. However all staff should be treated equally and you cannot vary the rules for temporary staff, agency workers, part-timers etc.
Leave entitlement starts building up from the worker’s first day. If staff are in agreement, you can use an accrual system during their first year. This means you can give new staff one twelfth of their annual leave entitlement for each month they work, and this can be rounded to the nearest half day. For example, a full-time worker in the third month of employment would have built up five days’ leave (The annual entitlement of 20 days multiplied by 3/12 equals 5 days). A part-timer who works three days a week and is still in his or her first month of employment would be able to take one day’s leave. The annual entitlement of 12 days (four weeks times three days a week) multiplied by 1/12 equals one day. A full time worker who is in his eight month of employment would have built up 13 and half days.
Holiday pay must be based on the worker’s average pay. You must agree with staff how much notice of leave they should give, and remember that if someone leaves your company they are entitled to be paid for any leave not already taken.
The ‘leave year’ can start on the first day of work, or if the company has a leave year, a new employees leave will be proportionate to the amount of time left during that year.
It should be relatively straightforward to calculate pay for leave. If a worker’ hours do not vary a weeks pay is the pay due for the basic hours contracted. Pay for overtime hours is not included unless it is guaranteed overtime. If staff do piece work or their pay varies with the amount of work, or when a week’s pay is partly made up of variable bonuses or commission directly related to that week’s output, then a week’s pay is the average hourly rate multiplied by the normal working hours. To calculate the hourly rate divide the weekly pay over the previous 12 weeks by the number of hours worked during the same period (pay and hours of non-compulsory overtime are excluded). Any week in which no pay was received is replaced by the week before the 12 weeks when you were paid to bring the total to 12. For ease, remember that a week’s pay is the total eligible pay (excluding voluntary overtime but including relevant bonuses) over the 12 week period divided by 12.
For shift workers where hours and pay vary in a set pattern, a week’s pay can be calculated by finding the average number of hours worked each week and the average hourly rate. To work out the average number of hours worked each week, add up all the hours worked for the past 12 weeks and divide by 12. Payments for piece workers can be worked out in the same way.
If you employ workers on irregular hours and various payments, work out payments by adding all pay for the last 12 weeks and dividing it by 12. Again if there is a week when there were no earnings, add in the pay from the week before the 12 week to bring the total up to 12.
Problems can occur when a worker has taken more leave than their entitlement when employment ends. In such cases you should have a ‘relevant agreement’, written – for example – in the contract of employment. This should state clearly that a worker will compensate the employer in such cases, whether by payment, undertaking additional work or otherwise. Even if you are a model employer and have a clear written contract, disputes can still arise. If a worker thinks he or she has been denied holiday entitlement, try to sort out the dispute through the company’s grievance or appeals procedures (if there is one). In most cases these procedures should clarify the situation and sort out problems. However, employees are entitled to submit a complaint to an Employment Tribunal within three months of refusal of holiday entitlement.
There is plenty of help and advice available. Contact www.acas.org.uk. See also article on additional time off for workers
