A worker's entitlement to paid annual leave starts on the first day of employment and is not subject to a minimum period of employment.
The Regulations permit an employer to operate a holiday accrual system for workers who are in their first year of employment (only). In practice this means that a new worker will accrue one twelfth of their annual holiday entitlement each month they are employed. This will apply from the start of each month.
For each week of leave accrued, workers are entitled to one week's pay. A week's pay is calculated according to the type of work carried out:
- for workers on fixed hours and pay, it equals the amount due for a week's work
- for workers on fixed hours and variable pay (bonus, commission or piece workers), it equals the average hourly rate (over the preceding 12 weeks) multiplied by the normal working hours in a week
- for shift workers, it equals the average weekly hours of work in the preceding 12 weeks at the average hourly rate
- for workers with no normal working hours, a week's pay is the average pay received over the preceding 12 weeks
To calculate the average hourly rate, you only have to count the hours where the worker was working and the pay that related to those hours. Overtime hours should be included in this calculation.
The 12-week reference period should be made up of 12 weeks in which pay was due to the worker. Any week in which the worker received no pay is replaced by the week before the 12 weeks when the worker was paid, to bring the total to 12. For example if no pay was due to the worker in the fourth week of this period, the reference period should cover weeks one to three and weeks five to 13.
Payments for untaken statutory holiday
In the UK, the statutory annual leave entitlement is 5.6 weeks. A worker must take at least four weeks' paid holiday per leave year.
What a worker does with the remaining 1.6 weeks depends on their contract of employment.
For example, you could allow them to carry those 1.6 weeks into the next leave year or state that all 5.6 weeks must be taken by the end of the leave year.
However, you cannot make a payment in lieu for any days that remain untaken. The only time you can make a payment in lieu of the statutory holiday entitlement is when the contract of employment terminates and the worker has accrued entitlement to holidays and is unable to take them before they leave.
Payments for untaken contractual holiday
At the end of a leave year, you may find you have a worker who has some untaken contractual annual leave, ie annual leave over and above the statutory minimum of 5.6 weeks.
Depending on their contract of employment, the worker may be entitled to either carry over the untaken days, or receive a payment in lieu of those untaken days.
When to pay workers their statutory holiday pay
Workers must receive their statutory holiday pay at the time that leave is actually taken.
It's therefore unlawful to not pay a worker while they are on holiday and pay them an allowance as part of their wages or salary instead - a system known as rolled-up holiday pay.