12 questions about annual leave and holiday pay

Over the last few years, navigating through the murky waters of rules on annual leave and holiday pay has become an extremely hard task. In addition to legislation, a number of court cases have muddied the waters further.

Below we answer 12 common questions about annual leave and pay.

1  How much annual leave are employees entitled to?
Full-time employees have the right to 5.6 weeks (28 days) of paid annual leave per year.

2  How about for part-time employees? How is their annual leave entitlement calculated?
Those working part-time are entitled to the same amount of holiday as full-time employees, but their entitlement is calculated on a pro rata basis.

Part-time leave is calculated by multiplying the number of days worked per week by 5.6. This means that if an employee works three days a week, they will be entitled to 16.8 days of paid annual leave. If someone works four days a week, they will have the right to 22.4 days.

3  Do I have to pay my employees for bank holidays?
Employees do not have a legal right to be paid for public holidays. Generally, bank holidays are counted as part of the statutory 5.6 weeks.

4  What do we need to pay employees while they are on holiday?
For workers with fixed working hours, holiday pay amounts to their weekly normal remuneration.

If an employee’s hours vary from week to week, holiday pay will be calculated on the average pay the employee earned in the past 12 weeks.

5  Is guaranteed overtime included in the calculation of holiday pay?
Yes. Guaranteed overtime, where the terms of the employment contract dictate that an employer pays for agreed overtime, must be included within the calculation of holiday pay.

6  What about non-guaranteed overtime?
Recent case law shows that overtime which the employer does not have to offer, but which employees are obliged to do under their contract, should be taken into consideration when employees are paid annual leave. This only applies to the minimum four weeks of leave that is established in EU law. It does not apply to the additional 1.6 weeks’ leave that is provided by the UK Regulations.

7  Does commission need to be included as part of holiday pay?
Just recently, the Court of Appeal confirmed in the long-running case of Lock v British Gas that an employee’s holiday pay must be based on their basic pay and any results-based commission they would have earned if they were not on annual leave. Unfortunately, the judgment did not answer how this should be calculated.

8  Can I pay an employee in lieu of holidays?
No. It is, however, permissible upon termination of the employment relationship, where any accrued but untaken leave must be paid.

9  What is rolled-up holiday pay? Is it legal?
Some employers have a practice of “rolled-up holiday pay”, which involves not paying holiday pay while the employee is on leave, but paying the employee an extra amount during the weeks that the employee works. This is likely to be acceptable as long as the rolled-up holiday pay element is clearly identifiable. Therefore, the employee’s payslips must show the amounts separately.

10  Are employees on long term sick leave and maternity entitled to annual leave?
Statutory holiday entitlement is still accrued while an employee is off work sick or on maternity leave.

11 Can employees carry over untaken annual leave?
Employees must be able to take at least four weeks of leave per year – this is the leave provided for under European legislation. If an employee receives 28 days’ leave (which is the minimum period of leave entitlement), they will be able to carry over up to a maximum of eight days, subject to agreement with the employer in a “relevant agreement”, for example the Contract of Employment. If the employee’s annual leave entitlement exceeds 28 days, again, you may allow the employee to carry over any extra leave depending on the terms in the Contract of Employment or Employee Handbook.

If an employee has been unable to take annual leave because they are on leave for a different reason, for example sick, maternity or parental leave, they can carry over some of their unused leave to the next year. An employer must allow the employee to carry over up to 20 days if they were sick or, for example, on maternity leave, and could not take the leave in that leave year.

12  What should I do if all my employees want to take time off at Christmas?
To ensure that there is at least a minimum level of service during the festive period, you could grant leave on the basis of ‘first come, first served’ or consider allowing people to choose between time off at Christmas or New Year. Alternatively, if an employee does not get the time off they requested at Christmas time, they could be given priority when they are booking their summer holiday. If the nature of your business means that it is not that busy during the festive period, you could consider closing down for a few days and making it mandatory for people to take time off.

Do not hesitate to contact your Employment Law Adviser to discuss any more questions you may have on this issue or any other HR or Employment Law matter.