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Annual leave and holiday pay

Most employees are legally entitled to paid annual leave. Employers have rights too, in regard to the timing of leave. Let’s look at how to calculate annual leave and holiday pay, and some of the important rules surrounding workers’ holiday entitlements.

How much paid annual leave is an employee entitled to?

Employees are generally entitled to 5.6 weeks of paid holiday each year. This is known as the statutory annual leave entitlement.

So, an employee who work five days each week has the right to 28 days of paid holiday each year, while a part-time employee who works three and a half days each week has the right to 19.6 days of paid leave each year.

Note: The statutory annual leave entitlement is limited to 28 days, so an employee who works six days a week is only entitled to 28 days of paid holiday each year.

Workers are not entitled to paid leave on public holidays (including bank holidays) – an employer can choose to include them within the statutory annual leave entitlement.

As an employer, you can tell your staff when to take leave by closing the business on certain dates such as bank holidays or during periods of shut down. You can also reasonably restrict when leave can be taken to ensure that you are not short staffed during busy periods.

How should I track each employee’s leave?

Most employers operate a leave year system in which the annual leave entitlement accrues monthly in advance throughout the year.

For example, if the company’s leave year runs from 1 April to 31 March, a full-time worker will have built up 3 / 12 x 28 = 7 days of leave by 1 July (i.e after three months of the leave year).

For new employees who join the business part way through the leave year, their annual leave entitlement is calculated pro-rata.

For example, using the same leave year, an employee who starts work on 1 October and who works four days each week will be entitled to 11.2 days of leave in the period from 1 October to 31 March. This is equal to 50% (6/12) of the annual entitlement of 4 x 5.6 = 22.4 days.

How do I calculate holiday pay?

For an employee working fixed hours for fixed pay, a week’s holiday pay is simple equal to calculate – it’s just the usual amount that the employee is paid for a regular week’s work.

Things can get a more complicated for staff who work irregular shifts or who are paid on a piece work basis. A week’s holiday pay for these staff is calculated as follows:

  • Shift workers with fixed hours

The average number of weekly fixed hours the employee worked in the previous 12 weeks at their average hourly rate

  • Casual workers with no fixed hours

The average amount the worker was paid over the previous 12 weeks (in which they were paid).

What happens if an employee doesn’t take all of their leave?

Under certain circumstances, employees may be allowed to carry over some of their untaken statutory leave from one leave year to the next. The worker’s rights are limited to any untaken leave over and above four weeks of leave. So, a full-time employee with 28 days of paid annual leave can only carry over up to eight days (that’s 28 days less 4 x 5 = 20 days).

If an employee leaves their job without having taken all of their statutory leave, the employer must pay for any untaken leave, even if the worker has been dismissed.

What happens if an employee is off sick or on maternity leave?

Employees continue to build up their leave entitlement while they off work sick, and while they are on ordinary and additional maternity leave, or on paternity or adoption leave.

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