SUMMARY: With holiday season upon us we have produced a FAQs fact sheet to help you calculate the holiday entitlements of your workers.
What holiday entitlement do my workers benefit from?
Your first point of reference is the contract you have with your worker as this should specify that holiday to which they are entitled (which is a legal requirement for employees) – this is known as their contractual holiday entitlement. Provided their contractual holiday entitlement is equal to, or more than, their statutory holiday entitlement this is their holiday entitlement. If their statutory holiday entitlement is greater than their contractual holiday entitlement, their statutory holiday entitlement prevails.
What is the statutory holiday entitlement?
Holiday entitlement under EU law and UK law is known as statutory holiday entitlement. The table below identifies these entitlements for a full time worker – a part-time workers’ holiday entitlement is calculated on a pro-rata basis.
|Source entitlement comes from
||Amount of holiday entitled to
|EU law (Working Time Directive)
||4 weeks (20 days)
|UK law (Working Time Regulations)
||5.6 weeks (28 days) including the 4 weeks provided for by EU law *
*This includes the eight statutory bank holidays.
Will Brexit affect the application of EU Law?
Currently there is no affect and it is generally predicted that, once we exit, the status quo regarding much EU derived employment law will be maintained. This is with the exception of holiday entitlements, in particular, in relation to including overtime and other payments when calculating holiday pay (see below), and holiday rights for those on long-term sick leave. We will provide updates when there is further information about these possible changes.
Do I need to include overtime payments with holiday pay?
This is dependent on whether the worker has normal working hours. Again, the first point of reference is the contract as this should make reference to working hours and whether that worker has normal working hours – for example, 9am to 5pm Monday to Friday.
For those with normal working hours the table below summarises whether paid overtime should be taken into account in the holiday calculation in relation to statutory holiday entitlement – contractual holiday entitlement may be different.
|Type of Overtime
||Include in holiday pay calculation?
|Compulsory and guaranteed
- Must be worked
- Regularly required
|YES for 5.6 weeks
|Compulsory and non-guaranteed
- Regularly required
- Cannot be unreasonably refused
|YES for 4 weeks
||PROBABLY YES – 4 weeks*
*In every case where overtime is voluntary, whether or not it should be included in the holiday pay calculation, will depend on all the circumstances as it is necessary for employers to consider whether the payments are related to the performance of the worker’s duties. Legal advice should be sought on a case specific basis.
Those who do not work normal hours should be paid an average of their remuneration over the previous 12 weeks – this will include overtime (of any type) as well as commission, bonuses and other payments. This is with the exception for those who have zero-hours contracts – in this instance some weeks are disregarded when calculating their 12 week average pay.
Is it just overtime payments that need to be taken into account when calculating holiday pay for workers with normal working hours?
No, any payments that are related to the performance of a worker’s duties should be taken into account in relation to the 4 weeks’ holiday (that holiday entitlement derives from EU law – see above). Such payments might include:
- bonuses based on performance;
- call-out supplements; and
- anti-social hours allowances.
Payments which do not usually need to be taken into account include:
- benefits in kind;
- bonuses not linked to workers’ performance; and
- expenses (including travel expenses) which reimburse workers for costs incurred.
How do I calculate the overtime or other payment which I need to include in the holiday pay of workers with normal working hours?
One approach to calculating the holiday pay of a worker with normal working hours is taking the average remuneration received by the worker in the 12 weeks prior to their holiday, in the same way as you would for a worker who does not have normal working hours.
The difficulty associated with this approach is the impact annual performance related bonuses may have on the calculation. Unsurprisingly there is a raft of case law on this area of law and the correct approach for this calculation will be dependent on the circumstances of each case. It is therefore advisable to seek legal advice on a case specific basis.
If you would like more information on holiday entitlements and pay, please contact:
+44 (0) 808 172 93 22
This update is for general guidance only and does not constitute definitive advice.