Holiday entitlement seems straightforward, but small business owners can find themselves in hot water when it comes to the rights of employees to take time off for holidays.
The Working Time Regulations give all workers the right to paid holidays, irrespective of the hours they work. However, the definition of ‘worker’ in the UK is wider than ‘employee’ and may, in fact, cover more people than you think. Casual, part-time, and even agency workers are included in this description. Some sectors are not covered by Working Time Regulations, but unless you’re a seafaring business or work in civil aviation, you should probably keep reading!
Holiday entitlements for UK employees
Let’s start with entitlements. How much annual leave are employees entitled to? Each employee is entitled to a minimum holiday entitlement of 5.6 weeks paid holiday pro-rata. That’s 28 days per year for someone working five days a week. This time can include public holidays such as Christmas, Easter, and the few Bank Holidays we get in the UK, but it doesn’t actually have to.
As holiday pay is paid pro-rata, part-time workers are obviously entitled to fewer than 28 days, and it is correlated to their working hours each week.
All UK employees are entitled to holidays from their very first day at work. In terms of how to work out holiday entitlement, the amount increases at the rate of one-twelfth of the statutory amount on the first day of each month during their first year.
Entitlements to holiday pay
For full-time employees with fixed pay, holiday pay is simple. For each week of leave they take, they are entitled to a week’s worth of pay. This is also true for part-time employees with fixed payments. If they take a week’s worth of leave, they will receive their usual salary for that. If your staff work shifts, either part-time or full-time, with the set, contracted hours, a week’s holiday pay is worked out as the average number of weekly fixed hours they completed in the previous twelve weeks, using their average hourly rate.
For zero-hour contract employees or casual staff, a week’s holiday pay is calculated as the average pay the worker received in the previous twelve weeks.
Setting your holiday year
Unless you specify otherwise, the leave year for employees will start from the first day of their employment. If you don’t do this, you will need to include in your employment contracts, the date from which your holiday year runs. It’s usually from 1 January to 31 December, but some companies choose to align it with their financial year or tax year.
When deciding when to set yours, think about your busiest period and avoid it being at the end of your holiday year, as people will be using up leftover leave to avoid losing it.
You can’t stop people from taking their holiday entitlement during the year, but that doesn’t mean staff can just take it at any old time. You are able to control how people take their holidays to ensure that they are on leave at sensible times. For example, not allowing holidays during your busy times or only allowing one person in a department off at once are perfectly reasonable rules.
You are also able to offer more holiday leave than the statutory minimum and you are free to make your own arrangements and rules for these extra days. For example, if staff are off on long-term sick leave, you might only allow them to accrue the statutory minimum as opposed to including the extra days as well.
What you are not allowed to do is to reduce the amount of holiday you offer below the statutory level, even if the staff member agrees to it.
Do employees have to take a holiday?
This is a tricky area. If employees don’t want to take a holiday, you can’t really force them to. But keeping it simple, your responsibility is to try to ensure that employees take their statutory minimum.
The regulations were brought in as part of an EU measure to ensure that the health of workers was looked after, so any tribunal will look unfavourably on any attempts to get around the obligation to provide holidays.
If employees look like they are going to have some annual leave allowance left over towards the end of your holiday year, you should really be encouraging them to take it. The use it or lose it policy is usually what works best. After all, any sensible employee would jump at the chance of some paid time off surely?
However, if you do go down the ‘use it or lose it’ route, you will want to confirm explicitly in your employment contracts that any holiday allowance remaining will not be carried over unless there are exceptional circumstances such as long-term sickness or being unable to take holiday due to business pressures.
Clarifying this upfront also means you avoid the issue of a leaver trying to claim large amounts of untaken holiday pay in lieu.
How much warning must be given before holidays are taken?
Employees should give you notice that they will be using their holiday allowance equivalent to twice the amount of time they are looking to take off. For example, if they want two weeks off, they need to give four weeks’ notice.
Employers looking to refuse a request should also give reasonable notice equalling the number of days that are due to be taken at least. So, for the above example, the employer would need to reject the request two weeks in advance.
However, if employers want to force employees to take a holiday at a set time like Christmas, they must give notice equivalent to twice the length of time of the holiday requested. Employers usually solve this problem by specifying the dates of any usual holiday periods in the contract.
You’re obviously able to waive these notice periods for requests should you wish, or even extend them if you want to. Many employment contracts will state that any notice is subject to management approval. For example, in a busy or more complex business, managers may ask for longer notice periods in order to properly organise handovers and cover.
Are employees still entitled to the holiday they’ve accrued when they leave?
Sometimes employees leave without having taken all the holiday leave they are entitled to. If this is the case, you will need to pay them ‘in lieu of the untaken days. For permanent workers, this will be worked out on the basis of how much of the year they have worked. For example, someone who has worked thirteen weeks a year should have taken five days of statutory holiday.
If, on the other hand, someone leaves having taken more holiday than they should, the excess holiday can be deducted from their final pay packet, provided that this is set out in a relevant agreement such as their employment contract.
During a notice period, employers may wish to compel employees to use any untaken holiday entitlement during their notice period. This can help to reduce any potential payment in lieu. If the employee is leaving because of a disagreement or grievance, then it can also help to keep that person away from the office at what could be a sensitive time. In such an instance, if there is sufficient time to allow notice to be given, the employer can serve notice to require the employee to take a holiday during this notice period. Very often, contracts will state an obligation on employees to use up their holiday during their notice period.
What is the employment law surrounding bank holidays?
You may not believe it, but there is no statutory right to time off on bank holidays. However, most employers who aren’t in the service industry close on bank holidays and deduct the bank holidays from the statutory holiday allowance. It’s a good idea to include the requirement to work on bank holidays in your employment contracts if it is something that you think you will need.
Employees need to have a clear understanding of what their rights and obligations are when it comes to taking holidays. With this in mind, it makes sense to ensure that adequate policies are in place when it comes to holiday leave entitlement. Feel free to contact our solicitors if you need professional legal advice on creating a holiday policy for your business.
Sarah Wilkinson is an employment solicitor with over 20 years of experience in dispute resolution. Sarah also has extensive experience in breach of contract claims and injunctions. Sarah is a member of The Law Society, The SRA and the ELA. To contact Sarah, visit the Contact Us page. For media enquiries: firstname.lastname@example.org