It’s holiday season – is your business ready?
It’s the time of year when you and your staff are looking forward to a summer break. How much holiday pay and annual leave are they entitled to?
It’s the time of year when you and your staff are looking forward to a summer break. How much holiday pay and annual leave are they entitled to? We explain the basics so you can ensure your business follows the rules.
Who is entitled to annual leave and holiday pay?
The statutory rules about paid annual leave apply to anyone in the UK who’s classed as a worker. That could be a direct employee or anyone with a contract to carry out work for you. It typically doesn’t apply to freelancers or subcontractors who can send someone else to do the work if needed. The definition includes full and part-time employees, agency staff, workers with irregular hours who only work when they’re needed, and people who work part of the year, such as seasonal workers.
The annual leave and holiday pay each staff member is entitled to varies depending on their working hours and how often they work for you over the course of a year.
Annual leave allowances
Workers in the UK are entitled to 5.6 weeks of annual leave per year. This means that an employee working a five-day week should get at least 28 days’ paid leave. The calculation changes for part-time or irregular workers. You can give your staff more than the statutory minimum as a perk or a reward for long service.
If an employee works three days per week, they’ll still get 5.6 weeks' leave, but they’ll get 16.8 days instead of 28. Irregular workers can accrue leave based on the number of hours they’ve already worked. You can use HMRC’s holiday entitlement calculator to work out how much leave each staff member is entitled to. It’s worth remembering that bank holidays can also count toward the allowance, letting you give staff bank holidays off, plus additional days so that they can book leave when they wish. Alternatively, bank holidays can also be unpaid. Depending on when your leave year runs, you might find that the number of bank holidays staff take varies based on when Easter falls. For example, if your leave year matches the tax year and Easter is late one year and early the next, you might find yourself with 10 bank holidays in a leave year instead of eight.
However you calculate allowances, always let your staff know what they’re entitled to and when the leave year starts and ends. For new employees who start work partway through the year, ensure they know how much time off they can take and how you’ve calculated their allowance.
Holiday pay allowances
Every worker is entitled to a week’s pay for every week of annual leave they take. For full and part-time staff, the calculation is simple, as you can pay them the same amount they’d receive if they were at work.
The calculation can become more complex for shift workers who are paid hourly, staff with irregular hours, or those who work only part of the year, such as term-time-only employees. Shift workers should receive holiday pay equivalent to the average number of fixed hours they worked in the past 52 weeks, based on their average hourly rate. With irregular or part-year staff, calculate how many weeks they worked over the past 52 weeks and their average pay per week during that time. If in doubt, give us a call for advice on the calculation.
Carrying over annual leave
Your employees will sometimes take time off for other reasons, and they’ll still be entitled to annual leave and holiday pay, which they can carry over into the next leave year if necessary. If an employee has been off sick, or taken maternity, paternity or adoption leave, they can accrue part of their annual leave allowance and use it when they return. Employees working regular hours can carry up to 20 days into the next leave year, while irregular workers can carry over up to 28 days.
Employees can also carry over their full remaining annual leave allowance if they weren’t given the opportunity to book time off, or if they weren’t told they’d lose their leave if they didn’t use it. It’s always worth sending email reminders and mentioning annual leave during meetings to keep you on the right side of the rules.
Holiday pay for leavers
If an employee resigns, they’ll usually be able to take the remainder of their statutory annual leave before they go. The number of days they can take will depend on how many days they have left, their notice period and how much of the leave year remains. For example, if they’re due to leave halfway through the leave year and have already had 14 days off, they won’t be entitled to any more time off. If they’ve taken more days, you can’t take the equivalent holiday pay out of their final pay without their written agreement.
Some staff may want to use their leave to bring their finish date forward. Alternatively, you can offer payment in lieu of days off. These rules apply to statutory leave, but you should also make arrangements for any additional leave allowances you offer.
Unpaid leave requests
Staff may request additional unpaid leave to take a career break to study or volunteer, to extend their holiday, or to care for a loved one. Some types of unpaid leave, such as parental leave, are a statutory requirement. With other requests, it’s up to you to decide what works for your business.
Granting unpaid leave requests can affect your cash flow and will affect how you process staff wages through payroll. Give us a call on 01664 503 700 when considering unpaid leave requests to understand how granting them will impact your business.
Whatever stage you’re at with your payroll, we’re here to help. Book a free consultation now.