Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement or annual leave). An employer can include bank holidays as part of statutory annual leave.
Self-employed workers aren’t entitled to annual leave.
But what if your workers work irregular hours, or are part time, or are casual occasional workers, how can you work out how much paid holiday they are entitled to, well actually its not as hard as you think, its based on an accrual of 12.7% per hour worked, here is a spreadsheet to help you calculate it.
Calculating average hourly rate
To calculate average hourly rate, only the hours worked and how much was paid for them should be counted. Take the average rate over the last 12 weeks. If no pay was paid in any week, count back a further week, so that the rate is based on 12 weeks in which pay was paid.
Workers have won a ground-breaking case at the Employment Appeal Tribunal to include overtime in holiday pay.
This means some people working overtime could claim for additional holiday pay. Currently, only basic pay counts when calculating holiday pay.
Since then we have had further legislation, the Deduction from Wages (Limitation) Regulations 2014 (the Regulations), which impose the 2 year limit on any new holiday pay claims raised from 1st July 2015 onwards. Separately, a recent case from the Northern Ireland Court of Appeal (Patterson v Castlereagh Borough Council) suggests that voluntary overtime may – in some circumstances – have to be included in holiday pay calculations.
The Northern Ireland Court of Appeal has just held that there is no reason why voluntary overtime cannot be part of an individual’s normal working week and therefore could be included in holiday pay calculations.
This will be bad news for many employers and in Scotland there are now 21,000 holiday pay claims in the Scottish Tribunal system alone. [Law-Now]
Whilst I am sure may employees will welcome the decision, this will surely lead employers to reconsider whether using contractors would be cheaper? No Holiday Pay, No Auto Enrolment Pension, No Redundancy or Statutory Pay
Many already predict that by 2020 50% of workers will be self employed!
Most larger businesses, especially if they are audited probably already accrue for Holiday Pay but not every business has been accruing the cost. FRS102 Section 28.1 will require that holiday pay is accrued. Here is an example from the FRC.
Holiday pay isn’t always easy to calculate for example if you have part time employees or casual workers, Gov.uk have a calculator to help work out the entitlement – GOV.UK Holiday Calculator
The next issue is the rate of pay, for some employees with regular hours its easy but for those with fluctuating rates, bonuses etc a 12 week average is used as explained by ACAS
On 4 November, the Employment Appeal Tribunal (EAT) ruled that holiday pay should reflect non-guaranteed overtime. Non-guaranteed overtime is where there is no obligation by the employer to offer overtime but if they do then the worker is obliged by their contract to work that overtime.
The Government set up a taskforce to consider the possible impact of the EAT’s ruling on holiday pay. Regulations were laid out on 18th December 2014 to limit claims for unlawful deductions from wages to two years. The rules apply to Employment Tribunal claims made on or after 1 July 2015.