Apart from pay, one of the most valued parts of any employee’s package is holiday. However, the rules on pay and holiday entitlement are complex, and it’s easy for an employer to make genuine mistakes and for an employee to misunderstand their rights.
Current legal position
The right to be paid annual leave is set out in the Working Time Regulations 1998 (WTR). This legislation implements the European Working Time Directive into UK law. Under WTR, every ‘worker’ – which includes someone who works for an employer, but more casually – is entitled to 5.6 weeks’ paid holiday each year. For a full-time, five-day-per-week worker, that equates to 28 days.
This 5.6-week period is made up of four weeks of EU-derived leave and 1.6 weeks of additional UK leave. Employers can choose to include bank holidays within the 5.6 weeks, or to grant this as additional time on top through the employment contract.
Notably, leave entitlement starts from the first day of employment. There is no length of service someone must complete before they qualify for paid annual entitlement.
Recent developments
At the start of April 2024, the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 came into force and brought clarity and reform to the law on holiday entitlement.
A week’s pay for holiday under these regulations now include payments, including commission payments, intrinsically linked to the performance of tasks which a worker is obliged under their contract to carry out; payments for professional or personal status relating to length of service, seniority or professional qualifications; and payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks before the calculation date.
And the rules allow accrual for irregular hours and part-year workers on a percentage basis. For these workers, holiday entitlement is no longer based on weeks of leave like other staff, but on hours worked, and it accrues automatically at the end of each pay period, whether that’s weekly or monthly.
The rate of pay is 12.07% of the actual hours worked in that pay period. This figure equals 5.6 weeks’ leave spread over a full year of work. Employers can either pay when leave is taken, or pay a 12.07% top-up each pay period, termed ‘rolled-up holiday pay’.
The law now officially allows rolled-up pay, provided the holiday pay element is clearly shown and calculated correctly.
How holiday pay is calculated
Holiday pay must reflect the pay the worker would have received had they been at work. Consequently, fixed-hours workers receive their normal weekly pay while variable-hours or variable-pay workers should have holiday pay based on the average pay over the previous 52 weeks, excluding unpaid weeks.
The 2024 amendments confirm that “normal remuneration” includes regular overtime, commissions, and regular performance-based bonuses.
How leave is calculated
There are two ways to calculate holiday entitlement: accrual and pro rata.
Full-time workers typically receive 5.6 weeks of paid holiday per year. This is calculated as 5 days × 5.6 weeks, giving a total of 28 days.
Part-time workers are entitled to leave on a pro rata basis. For example, someone working 3 days per week would get 3 days × 5.6 weeks, which equals 16.8 days of leave.
In contrast, irregular or zero-hour workers accrue holiday based on hours worked, at a rate of 12.07% (calculated as 5.6 weeks ÷ 46.4 weeks, assuming a full-time worker typically works 46.4 weeks per year). Leave normally accrues evenly through the year.
Carry over
As a rule, holidays must be taken in the same year. However, carry-over is permitted where the employer agrees and where the worker was unable to take leave because of sickness, maternity or other statutory leave.
Payment in lieu
When an individual leaves employment and has unused statutory leave, the worker must be paid for it; employers cannot require staff to forfeit accrued statutory leave at the end of their employment.
It is also important to note that an employer cannot simply pay staff for unused statutory holiday, instead of allowing them to take it during employment. This is only lawful when the employment is ending. Paying in lieu of leave during the employment relationship breaches the WTR, because workers must have the opportunity for rest.
In practice, this means it is important for employers to accurately track leave balances, even for part-time staff.
Managing holiday requests
While workers have a clear right to take their 5.6 weeks of paid annual leave, employers can regulate when leave is taken. Under the WTR, an employee can’t just demand to take leave; instead, they must give the employer notice. In essence, an employee must give notice at least twice the length of the leave requested, for example, two weeks’ notice for one week’s leave.
However, an employer can refuse or require leave to be taken at certain times by serving a counter-notice equal to the length of the requested leave. Employers can also impose their own notice procedures by policy or contract, provided they do not prevent workers from taking their statutory entitlement.
Reasonable refusals
It is lawful for an employer to reasonably refuse leave if, for example, too many other employees are on leave at the same time; business cover would be inadequate; or it falls within a designated ‘blackout’ or ‘restricted’ period – December in retail being a good example. However, refusals must be consistent and not discriminatory. Employers should also allow the employee to take the leave at another reasonable time.
Policy
It is useful for an employer to have a written holiday policy that sets out how and when leave can be requested; any notice requirements; how overlapping requests are prioritised; any blackout or peak-time restrictions; and how public holidays are treated.
Sandwich leave
Sandwich leave refers to the practice of employees booking short periods of leave before and after weekends or bank holidays to maximise time off. An example would be taking leave on Friday and Tuesday around a bank holiday, enabling the employee to gain five consecutive days off for the price of two.
From an operational standpoint, this can leave an employer short of cover, especially around public holidays. While it might irritate employees, employers can manage leave timing through fair, transparent rules. They could, for example, codify advance-notice requirements that demand more notice for leave adjacent to public holidays, say, one month’s notice for bridging days.
They could put in place rotation or fairness rules by operating a rota, so staff take turns having popular periods off. Alternatively, an employer could encourage early bookings and set deadlines to spread leave more evenly through the year.
Summary
This area of law is complex and often leads to disputes. Taking time to understand the principles will pay dividends in the long run.
Mark Stevens
Mark Stevens is a legal director in law firm VWV’s employment team