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Holiday and annual leave – An employer’s guide

Holiday and annual leave – An employer’s guide(Time to read: 8 minutes)

This guide highlights all the things you need to know in relation to statutory leave and other holiday rules.

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This guidance should be read in the context of your employees’ contractual entitlements as well as your statutory obligations.

Your legal obligations

As an employer, you’re required to give employees at least the minimum statutory holiday entitlement as set out in the Working Time Regulations 1998. You must also comply with any contractual entitlements and obligations agreed in the employee’s individual contract of employment.

The contract of employment

An employee’s annual leave entitlement forms part of their contract of employment; therefore, it should be documented in their written statement of employment particulars or in their contract. This must be given to the employee within two months of starting work with you. This is a legal requirement.

The employee’s contract should include:

  • Their annual leave entitlement
  • The leave year, e.g. 1st April to 31st March
  • Bank holiday entitlements/arrangements
  • Carry-over arrangements

Statutory holiday entitlement

Although you’ll be more concerned with the current statutory holiday entitlements, it’s useful to know a little of the history as it can impact on how some aspects of annual leave are dealt with – for example, holiday rights for staff on long-term sick leave and calculating holiday pay when including overtime.

The EU’s Working Time Directive originally gave workers the statutory right to take a minimum of 4 weeks’ (20 days) paid annual leave. It’s interesting to note that some of the subsequent case law in relation to this directive still only applies to the first 4 weeks of statutory leave – not to the full UK statutory leave entitlement.

In October 2007 the UK government increased statutory holiday entitlement to 4.8 weeks (24 days for an employee working a 5-day week) and then again to 5.6 weeks (28 days) on 1st April 2009.

So employees in the UK are entitled to 5.6 weeks’ (28 days) paid holiday a year and this can, at the employer’s discretion, include bank holidays.

Full-timers

Full-time workers (working 5 days a week) are entitled to 28 days of paid annual leave. This is calculated by multiplying a normal working week (5 days) by the annual entitlement of 5.6 weeks.

Statutory paid holiday entitlement is limited to 28 days. For example, staff working 6 days a week are only entitled to 28 days’ paid holiday.

Part-timers

Part-time employees are entitled to a pro rata calculation of the same amount of holiday as full-time employees, but always rounded up to the nearest half day. They get less paid holiday than full-time workers because they work fewer hours per week.

However, due to the variation of actual working times, the days or hours worked and the complexity of bank holidays, it’s easier to calculate part-time entitlements in hours.

Bank holidays

Contrary to popular myth, there’s no statutory entitlement to paid leave for bank (or public) holidays. You have discretion as to whether you offer your employees paid leave for bank holidays; but do ensure you comply with any contractual obligations in this respect.

Paid bank holidays can be counted as part of the statutory 5.6 weeks’ holiday entitlement under the Working Time Regulations 1998.

Bank holiday entitlement for part-timers continues to cause confusion and so it’s useful to clarify the legal position.

The Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 mean that part-time staff are legally entitled to pro rata holiday based on the normal full-time employee’s entitlement. Therefore, bank holidays must be accounted for in the annual leave calculation (before 2000, people tended to only be paid for bank holidays if they normally would have worked that day).

This does result in some staff feeling ‘worse off’ as some of their holiday is allocated to bank holidays and they have less choice about when they can use some of their entitlement (the opposite is true for others, depending on which days they normally work).

Practice Index’s ‘bank holiday calculator’ and blog explain how to calculate bank holidays for part-timers in more detail, giving some useful examples.

Additional leave

You can choose to offer more leave than the legal minimum and you don’t have to apply all the rules that apply to statutory leave to the extra leave. For example, a worker might need to be employed for a certain amount of time before they become entitled to it.

Holiday accrual

Normally holiday accrues on a daily basis, although some employers calculate holiday accrued as one twelfth of the leave entitlement in each month.

Employees are entitled to accrue holiday entitlement during, for example, sickness absence and maternity, paternity and adoption leave.

The leave year

As an employer, you’ll usually set the dates of your ‘leave year’ to coincide with the calendar year, January to December, or your financial year, April to March.

Some employers set their leave year around other dates to help manage staff leave in relation to service demands. For example, as people tend to use up any remaining leave just before the end of the leave year, this could cause problems in staffing the practice during November and December when the service experiences higher demand because of winter pressures. So, setting the leave year from October to September, or April to March, may be preferable.

The leave year that applies to each employee must be stated in their contract.

Don’t forget that if you decide to change the holiday year it will probably mean a change to the employees’ terms and conditions of employment, so you should follow a variation of contract process and obtain the employee’s agreement.

If an employee commences employment part way through the leave year, then their initial holiday entitlement is based on the period from their start date until the leave year ends.

If an employee leaves employment part way through the leave year, then their holiday entitlement will be adjusted accordingly – also taking account of any leave already taken.

Booking time off

You should ensure the rules for requesting and booking time off are set out in your staff handbook or in a specific policy.

As a general rule, the notice period for taking leave is at least twice as long as the amount of leave an employee wants to take (e.g. 2 days’ notice for 1 day’s leave), unless the contract says something different.

You can refuse a leave request, but you must give as much notice as the amount of leave requested (e.g. 2 weeks’ notice if the leave requested was 2 weeks).

Although you can refuse to give leave at a certain time, you can’t refuse to let employees take the leave at all.

You can determine the holiday and annual leave rules; for example, you can:

  • Determine when leave is taken
  • Require staff to take leave at certain times, e.g. bank holidays or Christmas
  • Restrict when leave can be taken, e.g. at certain busy periods
  • Stipulate that untaken leave (where carry-over is not allowed) will be lost
  • Confirm that taking time off which has not been approved will be considered unauthorised leave and adjustments to salary will be made accordingly

Carry-over

The first 4 weeks of statutory holiday entitlement must be taken within the holiday year (except in cases of sickness absence). Any holiday over the first 4 weeks (20 days for a 5-day week, 16 days for a 4-day week, etc.) may, with agreement, be carried over into the following leave year. It’s for the employer to decide their policy on carry-over and detail this in the employment contract.

The statutory position is that if an employee gets 28 days’ leave, they can carry over up to a maximum of 8 days if your policy allows for carry-over.

Holiday and sickness absence

Statutory holiday entitlement is accrued while an employee is off work sick (no matter how long they’re off).

Statutory holiday entitlement which isn’t used because of illness can be carried over into the next leave year. You must allow an employee to carry over a maximum of 20 of their 28 days’ leave entitlement if the worker couldn’t take annual leave because they were off sick.

If an employee is ill just before or during their holiday, they can take it as sick leave instead. You should set out clearly your requirements in relation to providing medical certificates/fit notes in these circumstances.

An employee can ask to take their paid holiday for the time they’re off work sick; for example, they might do this if they don’t qualify for sick pay. Any rules relating to sick leave will still apply.

Holiday pay

Ordinarily, employees will receive their normal hourly or weekly pay while on leave. However, where hours or weekly working patterns vary, holiday pay should represent an average hourly rate.

To calculate the 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.

Holiday pay calculations must also include regular overtime pay. This results from a decision based on EU law and therefore only applies to the first 4 weeks of holiday taken by an employee each year (although many employers are applying this ruling to all holiday for ease of administration).

Bonus and commission payments must also be taken into account; however, as these payments are variable and may be paid at various times of the year, advice should be sought from your HR and/or payroll provider on how and when to include them in holiday pay calculations.

The only time someone can get paid in place of taking statutory leave (known as ‘payment in lieu’) is when they leave their job. Employers must pay for untaken statutory leave (even if the worker is dismissed for gross misconduct).

If you have any comments or questions about leave entitlement, please contact Practice Index via [email protected]

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