Unravelling the holiday pay riddle

What is the recognised holiday year? The holiday year starts on the first working Monday in January and ends on the Sunday before the first working Monday the following January.

How many days holiday pay are employees entitled to per year? In 2019, the holiday entitlement is 31 days, which is split into 23 annual days and eight public days. In 2020 this will increase to 32 days, split into 24 annual days and eight public days.

When do staff start accruing holiday pay? From their very first day of employment.

How do I work out the entitlement of someone who starts employment part-way through a year? There is a simple calculation for this (see Fig 1). Firstly, count up the number of weeks they will be in employment for the rest of the current holiday year, then do the calculation in Fig 1, rounding up the answer to the nearest half day. This calculation should be used for new employees and leavers throughout the year; for leavers the number of days taken would be deducted from the answer and they would be paid the balance in their final wage.

How about part-time staff? How many days are they due? Let’s take someone who works two days a week in 2019 as an example. To work out what they’re due, take their 31 days of holiday entitlement, divide it by five and then multiply it by two. The answer is the number of days they’re allowed that year – in this case, 12. In 2020, of course, the holiday entitlement rises to 32 days.

Calculating holiday pay

What should be included in holiday pay calculations? It must take into consideration all eligible earnings, including guaranteed overtime, normal non-guaranteed overtime, voluntary overtime (where consistent and regular), commission and travel payments.

Should I include the above for all of an employee’s holidays throughout the year? You only need to use this guidance for the first 20 days of annual leave, in line with the EU Working Time Directive. The remaining 11 days (in 2019) or 12 days (in 2020) would be at the employee’s basic rate.

So how is holiday pay calculated? The formula in Fig 2 should be used for calculating holiday pay for the first 20 days of each year. Eligible earnings are the things in the list detailing what should be included in holiday pay calculations.

How do I work out payment for the remaining days? That would be worked out at the basic rate, which is normally what an employee’s contracted rate is.

If a contract of employment states that an employee’s working week is 40 hours, does this affect the calculation of their holiday pay? Anything over 37.5 hours would be classed as overtime so this would affect the calculation. In this case, the 2.5 hours per week would be paid at time-and-a-half.

If I’m only paying someone the basic rate throughout the year, should I use the recommended formula? If your employee does any of the things from the list of eligible earnings then yes, you should use the formula for the first 20 days of their holiday.

If someone is off sick during the 12 weeks prior to their holiday, will this affect the calculation of their holiday pay? We would always advise an employer to use an earlier week for the calculation in this situation.

Leaving employment

If someone is leaving, when should they receive their holiday pay? Any outstanding holiday pay should be paid with the final wage.

How do I know how many holidays to pay in a final wage? Do the calculation 31/52 x number of weeks the employee has been in employment (see Fig 1 again), then deduct any days they’ve taken and pay the balance.

Holiday pay when off sick

Do staff still accrue holiday pay while off certified sick? Yes, employees accrue holiday pay as normal while they’re off sick.

If someone is on long-term sick leave, does their holiday entitlement change? When someone hasn’t been able to use their holidays due to long-term sick leave, they can carry over 20 days of unused holiday. These days must be used within 18 months of the date they’re carried over.

Can an employee take holidays while off sick? Yes, but they must request any holidays in writing. Sick pay would be paused while the employee takes the holiday, then start up again afterwards.

These are just a few of the many different holiday pay situations that can arise. SELECT and the SJIB offer a variety of ways to help Members stay updated on other issues.

For further advice about holiday pay, email michelle.courtney@select.org.uk or call 0131 445 9213.

Michelle Courtney

SELECT Benefits Adviser

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