Understanding Holiday Entitlement: A Guide for UK Small Business Owners

Introduction to Holiday Entitlement

In the UK, holiday entitlement is a key employment right. All full time workers are entitled to a minimum of 5.6 weeks of annual leave per year (pro-rated for part-time employees).

Understanding how to calculate this entitlement can be one of the most complex aspects of HR management, often raising questions even among experienced professionals. While working out entitlement for full-time employees starting or leaving mid-year can be challenging, adding part-time or irregular hours workers can make calculations even more intricate.

This guide aims to provide guidance for the most common scenarios.

Annual Holiday Entitlement

The statutory minimum annual leave entitlement for a full-time employee working five days a week is 5.6 weeks (28 days), which includes bank holidays.

A common mistake is excluding bank holidays from calculations, as was previously the norm. However, entitlement must include both base holiday entitlement and UK bank holidays (8 days in England and Wales, 9 in Scotland, and 10 in Northern Ireland).

If your organisation offers enhanced leave (e.g., 25 days plus bank holidays), use the total entitlement (e.g., 33 days) when calculating pro-rata or part-year entitlement.

Calculating for Part-Year Workers

For employees starting or leaving mid-year, calculate their entitlement as follows:

1. Find the monthly entitlement

   • 28 days entitlement: 28÷12=2.33 days per month

   • 33 days entitlement: 33÷12=2.75 days per month

2. Multiply by the number of full months worked
   Example: An employee working from January to September (9 months):

   • 2.33×9=20.97 days (round up to 21)

   • 2.75×9=24.75 days (round up to 25)

3. Adjust for leave already taken
   Deduct the holiday and bank holidays already taken to determine outstanding leave or overuse.

   Example: If the employee took 10 days annual leave and 6 bank holidays (16 days total):

   • For 28 days entitlement: 21−16=5 days owed

   • For 33 days entitlement: 25−16=9 days owed

Calculating for Part-Time Workers

For part-time employees working fixed hours on fewer days per week, adjust entitlement as follows:

1. Pro-rate by days worked

   • 28 days÷5×3=16.8 days (round up to 17)

   • 33 days÷5×3=19.8 days (round up to 20)

2. Deduct bank holidays within their working pattern
   Ensure bank holidays falling on their workdays are deducted from their entitlement.

3. For irregular hours
   Convert entitlement to hours:

   • Example: A 40-hour full-time week with 28 days entitlement = 28×8=224 hours

   • If the employee works 30 hours (75% of FTE): 224×0.75=168 hours

   • Deduct bank holidays based on hours worked that day (e.g., 5 hours for Good Friday).

Calculating for Irregular Hours Workers

From April 2024, holiday entitlement for irregular hours workers is calculated as a percentage of hours worked in a pay period:

• Statutory entitlement (28 days): 5.6÷46.4=12.07%
  Example: If 30 hours were worked in June:
  30×0.1207=3.621 hours accrued

• Enhanced entitlement (e.g., 33 days):
  33÷46.4=12.69%33÷46.4=12.69%
  Example: 30×0.1269=3.807 hours accrued

Irregular workers’ pay for leave is based on their average pay over the previous 52 weeks (or average pay over total weeks worked if fewer than 52).

Contracts

It is vitally important that your contract clauses relating to annual leave are properly drafted.  For example, your employment contracts should clearly state:

• Details of holiday entitlement, including whether it includes and names bank holidays (this will effect whether you need to include additional bank holidays that might be granted, such as the Coronation bank holiday in 2023).

• How entitlement is calculated for part-time, part-year, and irregular workers.

• Your right to require employees to take leave during notice periods.

• Your right to recover overused leave from final pay.

Conclusion

Calculating holiday entitlement is not a one-size-fits-all process. It depends on employee type, working patterns, and contract terms. Staying up to date with legislation and ensuring accurate calculations are essential.

If you need support with holiday entitlement calculations or a review of your contract templates and holiday policies in light of the above, please contact us and we would be happy to help!