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Calculating holiday pay correctly

17 March 2022
Calculating holiday pay correctly

Employees and workers begin to accrue holiday leave and pay as soon as they commence work. However, the terms on which an individual is engaged by an organisation, will affect how much leave, and therefore pay, they would be entitled to. In this post, we explore the topic of calculating holiday pay correctly.

Statutory Entitlement

The statutory entitlement for full-time employees is to 5.6 weeks (28 days) of holiday leave per year. Organisations may contractually offer more but cannot offer less. Should an employee join or leave a company part way through the annual leave year, their entitlement will be apportioned. For
For example, if they work 6 months of the annual leave year, they will be entitled to 50% of their leave entitlement.

However, the position calculations are different where the employee works on a part-time basis or zero-hour basis.

Part-time worker

Part-time workers holiday is apportioned in a similar way to that of a full-time employee whose employment starts or ends partway through an annual leave year. Should the part-time worker work 50% of the hours a full-time worker works, they would be entitled to 50% of the full-time annual leave entitlement.

Flexible workers

In many industries, it is inappropriate for organisations to employ individuals on a full-time, permanent contract basis. The needs of the business require more flexibility and employees are often engaged on a part-time, adaptable basis. However, this can present issues when calculating what holiday leave a worker may be entitled to compared to a full-time employee.

For example, schools may employ teachers on a zero-hour contract and not require them to work on a regular or weekly basis. This was the case in The Harpur Trust v Brazel, where a zero-hour contract teacher had been contractually entitled to 5.6 weeks’ annual leave, apportioned to reflect
the hours she worked. The school calculated her holiday pay by dividing 5.6 (the full-time entitlement) by 46.4 (the total number of weeks in a year less the 5.6 weeks) to be 12.07% of the hours worked each term. However, the employment appeal tribunal held that the method to calculated Ms Brazel’s holiday pay entitlement was to calculate the average of her normal rate of
pay over the 12 term time weeks prior to the holiday being taken using the method as stated in the Working Time Regulations.

Classification of individuals

When considering the holiday pay an individual is entitled to, it is important that businesses ensure they have classified an individual’s employment status correctly. Individuals may be engaged by a business as either an employee, worker, or a self-employed contractor. While employees and
workers are entitled to holiday pay, contractors are not. Should a business not categorise correctly, they may face an employment tribunal claim for failure to pay holiday pay.

When classifying individuals, businesses should consider how the relationship shall work on a practical day-to-day basis, as the employment tribunal shall look beyond the label given to the relationship. Factors that may indicate employee/worker status include: if the individual is required
to wear a uniform, attend work at specific times, or request holiday leave. On the other hand, if the individual raises an invoice or chooses their own working hours, this may indicate they are a self-employed contractor. The more control exercised by the business over the individual, the more likely
they are to be considered an employee/worker.

Pimlico Plumbers have been involved in an employment tribunal case for several years, brought by Mr. Smith who asserted his employment law rights as a worker, despite being regarded as self-employed by Pimlico. An employee’s/worker’s contract may state if an employee/worker does not
use their paid statutory leave entitlement, they will “lose it” and not be able to carry it over to the next annual leave year. However, where there is no such wording, employees/workers can carry up to four weeks over. As Pimlico, regarded Mr. Smith as a self-employed contractor, they did not pay
him for the leave he took, nor allow him to carry any unused leave over. By wrongly categorising Mr. Smith as self-employed, Mr. Smith’s right to paid annual leave, and to carry over leave, accumulated so that when his contract was terminated he was entitled to payment for all accrued by unpaid leave at the time of his termination.

This decision means that where individuals are incorrectly categorised as self-employed, they may be entitled to four weeks’ pay for each year of their engagement, should they be held to be employees.

How we can help

Organisations should review their engagement documents to ensure that it accurately represents the relationship between the parties. Through doing this, they will be able to identify risk exposure and consider mitigating factors, for example, the amount of leave that can be carried over is limited
to 4 weeks leave per year and you may be able to introduce a policy to reduce this.

Our team of expert employment lawyers can work with you to ensure that you are categorising individuals correctly and advise you on their holiday entitlements. Should you have concerns about the employment status of individuals you engage and would like to speak to a member of our
employment team, please contact us via email at contact@davenportsolicitors.com or telephone on 02079036888.

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