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Holiday pay

Updated on 15 July 2021

Taking on an employee

In the UK, most workers are legally entitled to paid holidays/annual leave. On this page, we look at the rules in more detail and explain how to calculate and pay holiday pay.

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Basic information

A worker's statutory paid holiday entitlement is 5.6 weeks – this equates to 28 days for a worker working a five-day week. The 5.6 weeks is a minimum entitlement – you can choose to offer more. You must set out an employee's paid holiday entitlement in their contract (or written statement of terms and conditions of employment).

A worker's entitlement to paid annual leave starts on the first day of employment and is not subject to a minimum period of employment.

Employers are allowed to operate a holiday accrual system for workers who are in their first year of employment. In practice this means that a new worker will accrue one twelfth of their annual holiday entitlement each month they are employed. This will apply from the start of each month. So, if you take on a new full-time employee on 1 June 2021, after three month's work, they will have accrued 7 days leave (28 x 3/12).

If the worker’s employment ends (for example, because they have resigned or you have made them redundant), the worker is entitled to be paid for any leave time that they have not taken.

The genuinely self-employed do not have the right to any minimum paid holiday entitlement – they can take as little or as much holiday as they choose. However, like the minimum wage and auto-enrolment, those that are considered ‘workers’ for employment law purposes do – see our section on employment law status for more information on ‘workers’.

What if my employee doesn’t work full time?

The entitlement for part-time workers is calculated on a pro-rata basis. So if your employee works three days a week, they are entitled to 16.8 days (28 days x 3/5).

Days your employee works a week

Days holiday they are entitled to

1

5.6

2

11.2

3

16.8

4

22.4

5

28


Where calculations result in part days, e.g. 16.8 days, it may be easier to round the entitlement up to the nearest full day or half day, if this is easier for you to administer (you cannot round it down). Alternatively, you could work the holiday out in hours, so in the case above, 0.8 of a day for someone working an eight-hour day, is 6 hours and 40 minutes – you could ask your employee to come in one day to help you with something quickly in the morning and then take the rest of the day off.

If your employee works on a casual basis or very irregular hours (for example, they are on a zero hours contract), one method of calculating paid leave for them is to calculate holiday entitlement on the basis of hours worked.

The holiday entitlement of 5.6 weeks is equivalent to 12.07 per cent of hours worked over a year (the 12.07% figure is 5.6 weeks' holiday, divided by 46.4 weeks (being 52 weeks – 5.6 weeks)).


Example

Mary works 17 hours one week, 20 hours the next week, and then 15 hours for next two weeks. After a month of working, she would like to take some time off. She has accrued approximately 8 hours of paid leave (67 hours @ 12.07%) and can agree a suitable time with you to take them off.

When she takes them, you would need to pay her for the 8 hours accordingly. So, if she usually earned £9 an hour, she would be entitled to £72 (eight hours x £9) when she took her leave.


Holiday pay is a complex and ever-changing area of law. A case in April 2019 has muddied the water yet further (in this case, the Court of Appeal ruled that it was not correct for an employer to base a zero hour contract teacher’s holiday pay on 12.07% of the term's accrued earnings at the end of each term), however this judgement is in the context of a ‘part-year’ worker and in any case, is being appealed (it is scheduled to be heard in the Supreme Court in November 2021).

How do I deal with bank holidays?

Contrary to popular belief you do not legally have to give your employee paid time off for bank/public holidays (unless their contract provides for this). However, you or your employee may choose to include bank/public holidays as part of their holiday entitlement, which will then reduce their remaining annual leave entitlement accordingly.

If you have a full-time employee, who takes all the bank and public holidays off (typically 8 a year), this leaves them with 20 days' annual leave.

A common myth is that there is a right to extra pay for working on bank holidays – for example “time and a half” or double pay. This is incorrect – this would only be the case if their contract provides for this.

Booking leave

Your employee must give you notice that they wish to take leave. You should agree the notice period with your employee and set this out in writing. If there is no agreement in place, they must give notice of at least twice the length of the intended leave period.

Please note that although you can refuse to grant leave at certain times, for example if it is not a convenient time for you, you cannot refuse to let your employee take the leave at all.

Employers can set times that workers are required to take leave. For example, you could tell your employee that they must take two weeks annual leave in the summer when you normally take your two weeks' holiday.

If you do not have an agreement for taking leave and you want your employee to take all or part of their holiday entitlement on certain dates, you must give notice of at least twice as long as the leave period.

What happens with holiday if my employee is off sick or on parental leave?

Employees taking statutory leave like maternity, adoption, paternity and parental leave will continue to accrue paid holiday. They will also build up holiday entitlement while off work sick - however, if your employee is on SSP and it is too little for them live on, one possibility is that they may ask to take annual leave rather than SSP. More information can be found on GOV.UK.

How much should I pay my employee when they take leave?

If your employee has fixed hours, they should be paid the same rate while they are on holiday as they are normally paid in their job. For example, if they usually get paid £300 for a weeks' work, they will still be paid £300 when they take a week off. If they only take a day off (and normally work five days a week), you would probably pay them around £60.

The payment will be due at the same time as your employee’s normal wages (for example, weekly/monthly) and will be treated as earnings for Pay As You Earn (PAYE) tax and National Insurance purposes.

If your employee's hours of work vary from week to week, the amount they will get will be based on the average amount they earned. Since 2020/21, holiday pay is calculated based on their average pay rate in the preceding 52 weeks that they have worked, including regular bonuses, overtime, commission where relevant. If they have not been in employment for long enough to build up 52 weeks’ worth of pay data, you should use however many complete weeks of data you have.

Please note that employees must strictly, receive their holiday pay at the time that leave is actually taken. It is unlawful to not pay someone while they are on holiday and pay them an extra amount as part of their wages or salary instead – a system known as rolled-up holiday pay, even though many employees would prefer that.

More information

You can find basic information on holiday leave and pay on GOV.UK. There is also a tool on GOV.UK to help employers calculate their worker’s holiday entitlement.

You can find more information about holiday entitlement and how it should be calculated for workers with irregular working patterns here on GOV.UK. Guidance on how to calculate holiday pay for workers whose hours and/or pay are not fixed can also be found here on GOV.UK. This guidance should help workers to understand their rights and employers to understand their legal obligations. It includes several worked examples.

There is lots of information about holiday entitlement on the ACAS website.

Please be aware that disagreements and disputes over holidays and holiday pay are very common and can lead to problems such as a deterioration in your relationship with your employee or an increase in their sick leave. As such, you should make sure you try and understand the rules around their entitlements as far as possible and also set out your expectations around things like giving sufficient notice of leave clearly (ideally in writing), so you can avoid any problems later on.

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