The trouble with employee holidays is entitlement and pay, in particular the micro-management of these rights by legislation. There are solutions…
In fact there are a number of separate issues here and different ones can apply to different employment.
Employees are entitled to 4 weeks of holidays under legislation originating from Europe and 1.6 weeks from UK legislation, making 5.6 weeks in all. For employees working a five day week, that is 28 days in total. Keep in mind that many “self employed workers” are entitled to holiday too. You, and they, might not realise it. But when the worker does so, then they could be knocking at your door for substantial back holiday pay. Please talk to us early on.
Part-time employees working set days per week
We recommend that entitlement is expressed as weeks, not as days. So if an employee works one day per week, then they are entitled to 5.6 days holiday per year (which has to be rounded up to 6 days).
Part-time, and other, employees working variable hours
Entitlement to holiday is 12.07% of the hours worked, per year. Many employers pay this as an additional 12.07% on top of an hourly rate. The employee takes holiday at times when they are not working. The government advisory service, ACAS, says employers should not do this, but many do. In reality this practice is only very rarely challenged.
However, the correct, lawful, approach is for the employee to accrue hours at 12.07% of those worked. Then they are paid those hours when they take their holiday.
Service related days
Some employers add extra day’s holiday for each extra year of service, usually for up to 5 years. For those on 5 days a week that would be an extra 0.2 of a week. For those working fewer days per week the extra “day” can be pro-rata simply by adding 0.2 to the 5.6 weeks statutory entitlement.
The statutory entitlement is 5.6 weeks, including bank holidays. So, for statutory entitlement purposes, it matters not whether an employee works on a bank holiday or not. If they work it then it is not a holiday and the entitlement can be taken at another time.
This is where the trouble with employee holidays really begins!
In fairness, this is often straightforward. Salary continues throughout the year and employees take holiday, subject to approval, as and when they like. That is, unless they are paid overtime, bonuses or commission.
Employees with variable hours, overtime, commission or bonuses
The law is unclear as to how these are to be taken in to account. Regular payments, particularly regular overtime have to be taken into account for the first 4 weeks of holiday. Occasional overtime can be ignored but disputes could arise over exactly what is occasional. The current ACAS advice is to look at average earnings over the previous 12 weeks that have been paid.
The remaining 1.6 weeks (plus any extra days for service) can be paid at normal earnings. This may work well where employees normally take Bank Holidays. Paying these at normal earnings and the other 4 weeks at average earnings should work quite well.
Where employees typically work on Bank holidays this easily administered option is not available. You may feel it is not worth the administrative burden (and burden of explanation to employees) of paying different days at different rates.
Employees with seasonal earnings
Some employment sectors have busy seasons, managed through substantial overtime, followed by quiet periods where employees would normally take holidays. The reference period of using the 12 previous weeks could be unrepresentative. In such cases it will benefit the employer to use the past 52 weeks as the reference period.
New legislation from April 2020
If you have doubts about using 52 weeks rather than 12 weeks, relax. From April 2020 everyone will need to use the reference period of 52 weeks under new legislation.
There is more detail of the new legislation here.
The trouble with employee holidays is that every aspect of what was once a routine employment benefit is micro-managed by the law.
Malcolm Martin FCIPD
Author Human Resource Practice