Calculating holiday pay was once deemed a simple task, as it was based on an employee’s basic pay. However, there have been a number of decisions, in both the European Courts and National Courts within the UK that have further defined and regulated what ‘holiday pay’ is and how it is calculated.
A key decision from these courts, in their attempt to interpret EU rulings and national legislation, is that an employee’s regular bonus payments, and most overtime where such overtime is deemed to be ‘certain and notorious’, should all be included when calculating holiday payments. In other words, employers can no longer calculate holiday based on a flat rate.
As an employer, you should understand that different employees will receive different holiday allowances, based on their contract. This is because the ‘base’ rate is 5.6 times how many days they work in the week. In other words, a full-time employee, working 5 days, is entitled to 28 days annual leave. This entitlement for someone working 3 days a week, on the other hand, is 16.8 days rounded up to 17. However, this statutory leave is limited to 28 days per annum, so a staff member working 6 days a week does not gain more time off.
For staff working irregular hours, the government has an online tool to help calculate this. This can also be used to determine allowances for staff starting or leaving after the start of the year.
The full time minimum of 28 days per annum is inclusive of Bank Holidays. The employment contract should specify whether employees are required to work on Bank Holidays or not.
The requirement to pay for accrued but untaken annual leave only applies upon termination of employment, and whilst roll over of holiday from one leave year to another is permitted in some situations, employees should be encouraged to utilise their holiday during each leave year to ensure the employee has uninterrupted rest and relaxation.