Making sure employees receive the right amount of holiday allowance and holiday pay

  • Helping you ensure that your employees and workers take the statutory minimum amount of holiday each year and that holiday pay is calculated correctly.

What is holiday allowance and holiday pay?

Holiday allowance and holiday pay is the entitlement of employees to take paid time off work, as well as the pay they receive during this time. This can be a set number of days or a proportion of their salary.

Holiday allowance

Those who work 5 days a week and are full time employees or workers, are entitled to a total of 5.6 weeks’ paid holiday annually as a minimum, which equates to 28 days of annual leave. This can include the 8 bank holidays in England and Wales. In addition to this, any part time employees and workers are also entitled to paid holiday as well, something which is worked out accordingly based on the number of hours they work.

Calculating holiday entitlement for employees and workers who work irregular hours (for example shift workers) is a little more complex. Their holiday entitlement is 12.07% of the hours that they work. For shift workers, holiday allowance is usually calculated according to the average number of hours worked over a 12-week period.

If you want to increase an employee’s or worker’s holiday entitlement, this can be done by setting out a higher allowance within their employment contract. However, you can’t decrease holiday entitlement below the statutory minimum set out above.

The law states that employees and workers must take 20 days holiday per year, otherwise it will be lost. The exceptions to this are if employees/workers cannot use their holiday because they were incapacitated in some way, such as:

  • Sick
  • Injured
  • Pregnant or on maternity leave.

In these circumstances, the employee and/or worker can carry forward their holiday into the next holiday year.

You can add additional rules to your employment contracts or staff handbook in relation to the carry over of holiday. This may mean, unless there is a form of valid exception, limiting the amount of days that can be carried over and ensuring employees know when any carried over holiday must be taken by.

If you are concerned that your employees may not be taking the minimum holiday requirement or if you would like to ensure that your company’s contracts and policies are up to date, then please get in touch as we can help. We can also assist you in clearly setting out the process that should be followed when booking holiday.

Holiday pay

When an employee chooses to take annual leave, holiday pay should be paid for the time that they are absent. Companies cannot include a set figure for holiday pay in an employee or worker’s hourly rate (‘rolled-up holiday pay’). If any of your employee/worker contracts in place still include reference to rolled-up pay, then you should re-negotiate those contracts. We can advise you on liaising with those affected in order to re-negotiate their terms of employment.

When an employees or worker takes a week of leave, they must be paid an entire week’s salary for every week of leave they take. This figure is calculated based on the kind of hours worked and how they are paid for the hours.

Employees should be entitled to receive their “normal remuneration” across at least 4 weeks (20 days) of their annual leave. However, if the employee or worker in question receives bonus payments or commission payments, works overtime or receives any other types of payments which are intrinsically linked to the performance of their duties, these are factors that should be considered when totalling holiday pay.

How Moore Barlow can help

If you have a concern that your holiday pay is not being paid correctly, for example that bonus and commission payments are not being considered when holiday pay is calculated, please contact one a member of our team of experts who can help you assess the different elements of pay and the method used to calculate holiday pay. We can then advise whether any changes need to be made.

If changes are required, we can advise you on the process to follow in order to minimise the risk of any claims being brought against the company.

We have offices in Southampton, Richmond, London, Guildford, Woking and Lymington. Contact us for expert employment law advice.