As an employer in the UK, understanding how to correctly calculate holiday pay is a critical part of managing your workforce.
This article will give you concrete examples of how to calcutate holiday pay rates for your employees, following multiple employment. Head to Essentials of Holiday Pay if instead you’d like to better understand the fundamentals of Holiday Pay in the UK.
1. Understanding Average Holiday Pay in the UK
Average holiday pay is a term referring to the mean wage an employee is entitled to during their holiday period. The figure is not arbitrary but dictated by various factors, including the type of contract (full-time, part-time, or 0-hour), and additional components like overtime and commission.
The average holiday pay ensures employees continue to receive regular income during holiday periods, fostering financial stability and job satisfaction.
2. The Basics of Holiday Pay Calculation
The process of calculating holiday pay in the UK can vary depending on the employee's working schedule. For full-time employees who typically work 5 days a week, they're entitled to at least 28 days (or 5.6 weeks) of paid leave per year, which can also include bank holidays.
For part-time employees, their holiday entitlement is proportionate to the number of days they work in a week - a system known as 'pro-rata'. This ensures fairness, as their holiday entitlement is proportionate to their work schedule.
Now, let's break down the calculation process:
- Step 1: Determine the worker's weekly pay. This is usually stated in their contract.
- Step 2: Calculate the daily rate. You can do this by dividing the weekly pay by the number of days the employee works in a week.
- Step 3: Determine the total annual holiday pay. You do this by multiplying the daily rate by the total annual leave entitlement (28 days for a full-time worker).
Let's illustrate this with an example:
Suppose an employee works five days a week and earns £500 per week. The daily rate would be £100 (£500 divided by 5 days). Therefore, the total annual holiday pay for this employee would be £2,800 (£100 multiplied by 28 days).
This basic calculation ensures that during their time off, employees receive the same pay they would have gotten had they been working. It's important to note that various factors can affect this calculation, including the inclusion of overtime, commission and bonuses, which will be addressed later in this article.
3. Overtime and Holiday Pay: The New 2022 Ruling
The landscape of holiday pay calculation shifted significantly in 2022, particularly concerning regular overtime. The new Supreme Court ruling (Harpur Trust v Brazel) demands regular overtime payments be considered in calculating at least four of the 5.6 weeks of an employee's statutory annual leave.
This recent ruling highlights that part-year contract workers, like those on term-time only contracts in education, could be entitled to more pay than previously established. It also declared the 'percentage' method - providing holiday pay at 12.07 per cent of annual hours worked - as unlawful.
Acas emphasises that all employees, irrespective of their part-time, full-time or zero-hours contract status, are entitled to statutory annual leave. They encourage employers to familiarise themselves with holiday pay calculation methods available on the Acas website and the government's online holiday entitlement calculator, to avoid potential contract breaches.
4. Calculating Holiday Pay Rates for Various Situations
Bank Holiday Pay Rate and Employers’ Legal Obligations
Employees are entitled to a minimum of 5.6 weeks of paid holiday per year. However, there's no statutory right to paid leave specifically on bank holidays. Any entitlement to paid time off or extra pay (like time-and-a-half) for working on a bank holiday is contract-dependent.
For instance, if an employee's contract states they're entitled to 28 days of holiday excluding bank holidays, and they're asked to work on a bank holiday, they would be paid their usual rate unless their contract stipulates otherwise.
Holiday Pay Rates for Fixed Hours Employees
For employees with fixed working hours, the holiday rate of pay is equivalent to a week's wage for each week of leave. It's as straightforward as multiplying their weekly hours by their hourly rate.
For example, let's say an employee works 40 hours a week at a rate of £15 per hour. Their weekly wage is £600. Thus, for a week of annual leave, they would receive the same £600.
Holiday Pay Per Hour For Hourly Employees
For employees whose hours are not set and fluctuate from week to week, holiday pay is determined by averaging their hours worked over the preceding 52 weeks, inclusive of any overtime (as explained above).
It's crucial to note that the Employment Rights Act 1996 stipulates that employers must include regular overtime, commission, or bonuses in this calculation. This is to ensure workers are not financially disadvantaged when taking annual leave. More about part-time workers' holiday entitlements here.
Let's illustrate with an example:
Let's say an employee has worked the following hours over the last three weeks (to simplify, we're using three weeks instead of 52):
- Week 1: 35 hours, no overtime, no commission
- Week 2: 30 hours, plus 5 hours overtime, £50 commission
- Week 3: 40 hours, no overtime, £100 commission
First, we calculate the total hours for each week, including overtime:
- Week 1: 35 hours
- Week 2: 35 hours (30 hours standard + 5 hours overtime)
- Week 3: 40 hours
Next, we add the hours and divide by the number of weeks to get the average:(35+35+40) ÷ 3 = 36.67 hours
Now, let's calculate the average weekly pay. If the employee is paid £10 per hour, their weekly pay (excluding commission) for the three weeks would be:
- Week 1: 35 hours x £10 = £350
- Week 2: 35 hours x £10 = £350
- Week 3: 40 hours x £10 = £400
We then add any commissions to the weekly pay:
- Week 1: £350 (no commission)
- Week 2: £350 + £50 commission = £400
- Week 3: £400 + £100 commission = £500
Finally, we calculate the average weekly pay (including commission):
(£350 + £400 + £500) ÷ 3 = £416.67
This means, for a week of annual leave, the employee would be entitled to £416.67, representing the average weekly pay.
Holiday Pay for Workers Without Fixed Hours or Pay
Calculating holiday pay for workers on casual or irregular hours involves averaging the pay they received over the previous 52 weeks they were paid, just like for hourly employees.
Holiday Pay for Zero Hour and Part-Year Contracts
In the case of a holiday pay 0 hour contract, casual workers still hold the right to a pro-rata amount of 5.6 weeks of holiday. To calculate, you'd average their weekly pay over the 52 weeks preceding the holiday, just like for hourly workers.
Rolled-up Holiday Pay
It's important to note that the practice of 'rolling up' holiday pay – where holiday pay is paid in advance rather than when holiday is taken – is generally not lawful in the UK, except in rare circumstances.
In practice, this would mean adding an amount on top of an employee's hourly wage as 'holiday pay', instead of paying them when they actually take leave. To avoid any potential legal issues, it's recommended to provide holiday pay when employees take their leave.
Conclusion
Calculating holiday pay accurately is not just about legal compliance—it's also an integral part of fostering a happy, motivated workforce. With the insights from this guide, UK employers can navigate the complexities of holiday pay calculations and ensure fair remuneration for their employees. Remember, taking care of your employees is an investment in the health and future success of your company.
Related Articles
- https://www.gov.uk/holiday-entitlement-rights/holiday-pay-the-basics
- https://www.acas.org.uk/checking-holiday-entitlement/calculating-holiday-pay
- The Essentials of Holiday Pay in the UK
- How to Calculate Holiday Entitlements for Part-Time Employees and Workers
- What is a Casual Worker?
- Zero-Hour Contracts in 2023
As an employer in the UK, understanding how to correctly calculate holiday pay is a critical part of managing your workforce.
This article will give you concrete examples of how to calcutate holiday pay rates for your employees, following multiple employment. Head to Essentials of Holiday Pay if instead you’d like to better understand the fundamentals of Holiday Pay in the UK.
1. Understanding Average Holiday Pay in the UK
Average holiday pay is a term referring to the mean wage an employee is entitled to during their holiday period. The figure is not arbitrary but dictated by various factors, including the type of contract (full-time, part-time, or 0-hour), and additional components like overtime and commission.
The average holiday pay ensures employees continue to receive regular income during holiday periods, fostering financial stability and job satisfaction.
2. The Basics of Holiday Pay Calculation
The process of calculating holiday pay in the UK can vary depending on the employee's working schedule. For full-time employees who typically work 5 days a week, they're entitled to at least 28 days (or 5.6 weeks) of paid leave per year, which can also include bank holidays.
For part-time employees, their holiday entitlement is proportionate to the number of days they work in a week - a system known as 'pro-rata'. This ensures fairness, as their holiday entitlement is proportionate to their work schedule.
Now, let's break down the calculation process:
- Step 1: Determine the worker's weekly pay. This is usually stated in their contract.
- Step 2: Calculate the daily rate. You can do this by dividing the weekly pay by the number of days the employee works in a week.
- Step 3: Determine the total annual holiday pay. You do this by multiplying the daily rate by the total annual leave entitlement (28 days for a full-time worker).
Let's illustrate this with an example:
Suppose an employee works five days a week and earns £500 per week. The daily rate would be £100 (£500 divided by 5 days). Therefore, the total annual holiday pay for this employee would be £2,800 (£100 multiplied by 28 days).
This basic calculation ensures that during their time off, employees receive the same pay they would have gotten had they been working. It's important to note that various factors can affect this calculation, including the inclusion of overtime, commission and bonuses, which will be addressed later in this article.
3. Overtime and Holiday Pay: The New 2022 Ruling
The landscape of holiday pay calculation shifted significantly in 2022, particularly concerning regular overtime. The new Supreme Court ruling (Harpur Trust v Brazel) demands regular overtime payments be considered in calculating at least four of the 5.6 weeks of an employee's statutory annual leave.
This recent ruling highlights that part-year contract workers, like those on term-time only contracts in education, could be entitled to more pay than previously established. It also declared the 'percentage' method - providing holiday pay at 12.07 per cent of annual hours worked - as unlawful.
Acas emphasises that all employees, irrespective of their part-time, full-time or zero-hours contract status, are entitled to statutory annual leave. They encourage employers to familiarise themselves with holiday pay calculation methods available on the Acas website and the government's online holiday entitlement calculator, to avoid potential contract breaches.
4. Calculating Holiday Pay Rates for Various Situations
Bank Holiday Pay Rate and Employers’ Legal Obligations
Employees are entitled to a minimum of 5.6 weeks of paid holiday per year. However, there's no statutory right to paid leave specifically on bank holidays. Any entitlement to paid time off or extra pay (like time-and-a-half) for working on a bank holiday is contract-dependent.
For instance, if an employee's contract states they're entitled to 28 days of holiday excluding bank holidays, and they're asked to work on a bank holiday, they would be paid their usual rate unless their contract stipulates otherwise.
Holiday Pay Rates for Fixed Hours Employees
For employees with fixed working hours, the holiday rate of pay is equivalent to a week's wage for each week of leave. It's as straightforward as multiplying their weekly hours by their hourly rate.
For example, let's say an employee works 40 hours a week at a rate of £15 per hour. Their weekly wage is £600. Thus, for a week of annual leave, they would receive the same £600.
Holiday Pay Per Hour For Hourly Employees
For employees whose hours are not set and fluctuate from week to week, holiday pay is determined by averaging their hours worked over the preceding 52 weeks, inclusive of any overtime (as explained above).
It's crucial to note that the Employment Rights Act 1996 stipulates that employers must include regular overtime, commission, or bonuses in this calculation. This is to ensure workers are not financially disadvantaged when taking annual leave. More about part-time workers' holiday entitlements here.
Let's illustrate with an example:
Let's say an employee has worked the following hours over the last three weeks (to simplify, we're using three weeks instead of 52):
- Week 1: 35 hours, no overtime, no commission
- Week 2: 30 hours, plus 5 hours overtime, £50 commission
- Week 3: 40 hours, no overtime, £100 commission
First, we calculate the total hours for each week, including overtime:
- Week 1: 35 hours
- Week 2: 35 hours (30 hours standard + 5 hours overtime)
- Week 3: 40 hours
Next, we add the hours and divide by the number of weeks to get the average:(35+35+40) ÷ 3 = 36.67 hours
Now, let's calculate the average weekly pay. If the employee is paid £10 per hour, their weekly pay (excluding commission) for the three weeks would be:
- Week 1: 35 hours x £10 = £350
- Week 2: 35 hours x £10 = £350
- Week 3: 40 hours x £10 = £400
We then add any commissions to the weekly pay:
- Week 1: £350 (no commission)
- Week 2: £350 + £50 commission = £400
- Week 3: £400 + £100 commission = £500
Finally, we calculate the average weekly pay (including commission):
(£350 + £400 + £500) ÷ 3 = £416.67
This means, for a week of annual leave, the employee would be entitled to £416.67, representing the average weekly pay.
Holiday Pay for Workers Without Fixed Hours or Pay
Calculating holiday pay for workers on casual or irregular hours involves averaging the pay they received over the previous 52 weeks they were paid, just like for hourly employees.
Holiday Pay for Zero Hour and Part-Year Contracts
In the case of a holiday pay 0 hour contract, casual workers still hold the right to a pro-rata amount of 5.6 weeks of holiday. To calculate, you'd average their weekly pay over the 52 weeks preceding the holiday, just like for hourly workers.
Rolled-up Holiday Pay
It's important to note that the practice of 'rolling up' holiday pay – where holiday pay is paid in advance rather than when holiday is taken – is generally not lawful in the UK, except in rare circumstances.
In practice, this would mean adding an amount on top of an employee's hourly wage as 'holiday pay', instead of paying them when they actually take leave. To avoid any potential legal issues, it's recommended to provide holiday pay when employees take their leave.
Conclusion
Calculating holiday pay accurately is not just about legal compliance—it's also an integral part of fostering a happy, motivated workforce. With the insights from this guide, UK employers can navigate the complexities of holiday pay calculations and ensure fair remuneration for their employees. Remember, taking care of your employees is an investment in the health and future success of your company.
Related Articles
- https://www.gov.uk/holiday-entitlement-rights/holiday-pay-the-basics
- https://www.acas.org.uk/checking-holiday-entitlement/calculating-holiday-pay
- The Essentials of Holiday Pay in the UK
- How to Calculate Holiday Entitlements for Part-Time Employees and Workers
- What is a Casual Worker?
- Zero-Hour Contracts in 2023
