Holiday entitlement and pay is regulated by The Working Time Regulations 1998 (TWTR). At Folio we understand navigating this can be complex as there are different rules dependant on the worker type. This article will guide you as an employer to make informed and compliant calculations.

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Background to the changes

In 2022, the Supreme Court made the decision that Ms Brazels’, a music teacher contracted only to work during term time, annual leave entitlement under the TWTR 1998 should not have been prorated so that it was proportional to amount of time she had worked but rather calculated by looking at the average pay received for weeks that were worked.

The outcome was what can be described as one of the most significant cases in recent years regarding holiday pay, Harper Trust v Brazel, lead to a reform to The Working Time Regulations. Following the ruling, the government held consultations to address inconsistencies to ensure all workers receive an entitlement proportionate to the time worked and provide clarity on the complex holiday pay legislation. Reforms to TWTR were introduced on 1^st January 2024 and applicable to holiday leave years starting on or after 1^st April 2024.

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Holiday year

Before any calculations are made, it is important to confirm your companies holiday year policy. Most employers set the holiday year in a workers contract which is usually the standard for everyone, examples of this would be 1^st January to 31^st December or 1^st April – 31^st March. If the holiday year has not been defined in your employment contract, the default is that the year starts on workers start date.

Worker types

Employers should ensure that working patterns are clearly defined in their worker contracts. Generally, a worker is classified as one of the following:

1.    Full-time or part-time worker –is contracted to work a standard number of hours per week. There is no specific number to make an individual full-time, though this is typically 35 to 40 hours per week.

2.    Irregular hours worker - defined in relation to a leave year, if the number of hours they work in each pay period during the term of contract Is wholly or mostly variable

3.    Part-year worker – defined in relation to a leave year if, under their contract, they are required to work only part of that year and there are periods within the year of at least a week which they not required to work and not paid. For example, a seasonal fruit picker.

Statutory holiday entitlement

Most workers are entitled to a maximum statutory paid leave of 28 days, the equivalent of5.6 weeks holiday.  According to The Working Time Regulations 1998, this is broken down as:

Essentially, when a worker entitled to the above takes holiday, they should receive the same pay as when they’re at work. Bank or public holidays do not have to be given as paid leave but can be included aspart of a worker’s statutory annual leave. As an employer, you may at your discretion provide extra holiday additional to statutory entitlements.

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Irregular hours and part year

Regulation 15B introduced in the reform to TWTR states the following are lawful methods for calculating holiday pay for irregular hours and part-year workers:

1.    An accrual method

In this case, a worker accrues a minimum of 12.07% of hours worked at the end of each period. Where the hour accrued is 30 minutes or less, this should be treated as zero and where the hour accrued is 30 minutes or more this should be rounded up to one hour.

To calculate the rate of pay for holiday, employers should use the previous 52 weeks of earnings (up to 104 weeks if there are missing periods of work). The hours worked should then be divided by the number of weeks in the reference period to get an average weeks’ pay.

2.    A rolled-up method

In this case, a worker is paid 12.07% of total pay received at the end of each period. This should be shown as a separate entry on payslips as holiday time is not booked off. However, employers should still encourage workers to take leave

Under this regulation, a worker cannot in any leave year accrue more than 28 days of annual leave.

During periods of sick, maternity or family related leave, employers should calculate the average number of hours to determine what holiday leave a worker will accrue. An average week of hours is based on the previous 52 weeks and calculated for each new absence period.

Please note, statutory absences affect calculations. Any week a worker has had a statutory absence should be excluded but include any week the worker could have worked but did not.

Unused holiday

A workers’ contract should state how many days of leave can be carried over into the next year. If a worker receives the statutory 28 days, they may carry over a maximum of 8 days. If they are entitled to more than 28 days leave, employers should include the total amount allowed to carry over in their contracts or company handbooks.

If a worker cannot take their leave entitlement due to sick, maternity or family related leave the following rules apply:

Regular  hour workers:

- Up  to 20 days for a maximum length of 18 months after the leave year in which it  was accrued ends

Irregular hours or Part-year workers:

- Up to 28 days for a maximum length of  18 months after the leave year in which it was accrued ends

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In addition to the above, a worker can carry over their whole entitlement if any of the following apply:

• They did not receive rolled-up holiday pay they were entitled to
• They were not given an opportunity to take leave
• They were not told they would lose their leave if they did ont take it by the end of the year

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Termination calculations

The only instance in which a worker may receive payment in lieu of taking statutory leave is when they leave their job, even in cases of dismissal.

If a worker has taken more leave than they’re entitled to, employers must not make deductions from final pay unless this has been agreed in writing beforehand.This is usually mentioned in the employment contract or company handbook.

‍Need help with your holiday entitlement calculations? At Folio our experienced and knowledgeable team can assist you with ensuring your holiday calculations are accurate and compliant with legislations and contractual obligations.Please get in touch if you need any advice.

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