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An Employer's Guide to Holiday Pay Rules

Given the variety of employment terms and conditions businesses must adhere to, it’s understandable that there is confusion as to what employers can, and can’t do, when it comes to holidays. Read our employers' guide to holiday pay rules to find out where you stand.

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What is HR?

Human Resources refers to the recruitment, management and development of your employees, and also covers labour relations.

A business doesn’t need an HR department to do these things – but as you grow, it certainly helps make the process more efficient.

Organisations approach HR in different ways and use their HR teams for different activities. For instance in some companies HR takes responsibility for disciplinaries, while other firms choose to keep that between the employee and their line manager.

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Standard holiday pay entitlement for full-time employees

The key rule for holiday pay in the UK is that full-time employees working 5 or 6 days per week are entitled to 28 days per annum.

However, there are many other rules for particular circumstances.

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What are the holiday pay rules around public and bank holidays?

Although businesses commonly give staff time off for public and bank holidays, there is nothing in employment law that requires it. This means that the current eight days of public and bank holidays in the UK may be incorporated within the 28 days, or in addition. Either is acceptable if it is clear in the employee's contractual terms and conditions.

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How should part-time employees’ holiday pay be calculated?

The simplest calculation is to divide 28 by five and multiply by the number of days the employee works. For example, an employee working three days per week is entitled to 16.8 days of holiday (this may be rounded up, or even kept as a fraction - but not rounded down).

It doesn’t matter whether your employee works on bank holidays or not - you can apply the full entitlement, explained above, in any way that is fair and lawful.

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Holiday pay entitlement for employees with variable hours

The simple solution to calculating holiday pay for employees with variable hours, or on zero hours contracts, is to calculate the holiday entitlement as a percentage of a full-time employee’s annual work days. For example, if the Holiday entitlement is 28 days this equates to 12.07% of their annual work days.

You could then maintain a running total of employees work hours and multiply them by this percentage when holidays are being calculated. For example, last eight weeks work hours - 120 x 12.07% = 14.5 hours holiday accrued.

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Who decides when employee holidays are taken?

Employers can refuse holiday requests provided that refusals are not unreasonably applied. You must be mindful that refusal to grant time off to observe religious holidays could result in indirect religious discrimination.

Both parties must give notice of at least equivalent to twice the period of the holiday requested, although employers may specify different rules in their employment contract. The employer may specify certain times of the year when part of the entitlement must be used (usually for annual shutdowns). Disciplinary action can be taken against employees who take holiday without consent or after consent has been refused.

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Can employees be paid in lieu of holidays and/or carry them over?

Under the working time directive each employee should take a minimum amount of holiday per year. For a fulltime employee, that is 21 days, and pro-rated for part-time employees. As such, only seven days should be carried over by a full-time employee.

You must carry forward or pay unused holiday benefit under the following two circumstances:

  • Maternity leave - Employees on maternity leave cannot take holidays during their leave without ending the maternity leave. This means that any accrued entitlement, prior to and during the leave period, may be carried forward.
  • Illness - An employee who is prevented from working due to an illness certified by a Doctor’s Certificate will be paid occupational sick pay as set out in their contract of employment. If they remain sick at the end of the occupational payment period, they will be eligible for Statutory Sick Pay. They will accrue holiday entitlement whilst they are sick and be entitled to take the holiday or payment in lieu when they are able to return to work.

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Business insurance from Towergate

Whether you’re a large business, SME or sole trader, work from home or have a property empire - Towergate have got an insurance policy for you. For more information, visit our dedicated business insurance page.

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About the author

Alison Wild Bcom Hons MAAT MATT Taxation Technician Commercial Tax Pensions Insurance And Marketing Specialist AuthorAlison Wild BCom (Hons), MAAT, MATT, Taxation Technician is a highly respected industry professional who has been working with and advising SMEs in areas including tax, pensions, insurance and marketing for over 25 years. She is a member of the Association of Accounting Technicians (AAT) and Association of Tax Technicians (ATT) and also has over 20 years' experience as a residential landlord.