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Thanks to all those of you who responded to our recent survey on the calculation of holiday entitlement. We received responses from 142 organisations across a range of sectors, which we fed into the government's consultation, 'Calculating holiday entitlement for part-year and irregular hours workers', earlier this month.

What is the government considering?

The government proposes introducing a fixed holiday entitlement reference period of 52 weeks to ensure that holiday entitlement and pay is directly proportionate to time spent working. It proposes to include the weeks in which workers perform no work in this reference period.

Under the government's proposals, at the beginning of a new leave year, a worker's holiday entitlement would be calculated based on the previous 52 weeks. This would give a worker "a fixed pot of annual leave" that they could then draw from throughout the leave year. 

The worker's statutory annual leave entitlement would then be calculated by looking at the total number of hours worked in the previous 52 weeks (including weeks without work) and multiplying them by 12.07% (this percentage derives from dividing the 5.6 weeks of annual leave by 46.4 weeks; the number of working weeks).

While this approach introduces certainty it isn't necessarily the best option for irregular hours workers who may work an increased number of hours in a leave year, but only have a holiday entitlement based on the hours they worked in the previous year. It remains to be seen how the government tackles this issue.

Calculating holiday entitlement and the information needed to do so

You are using a number of holiday calculation methods. Many of you are still applying the 12.07% percentage to the number of hours worked. Others, following the decision in Harpur Trust v Brazel, now calculate holiday entitlement over a 52-week period, going back up to 104 weeks and not counting weeks that aren't worked. Others use different reference periods, for example a month or a quarter and are then pro-rating the holiday entitlement to a full-time equivalent (5.6 weeks).

47% of you agreed that the information you currently collect would be sufficient to calculate holiday entitlement using a reference period. Many of you already have payroll software which can implement reference periods and capture the necessary information. Others record hours of work on spreadsheets and can use that information to calculate the holiday owed. Some measure the hours worked on a daily basis, others on a weekly or monthly basis.

Of the 14% of you who didn't agree that you had sufficient information, the predominant reason was a lack of adequate systems to enable you to make the calculation.

Your thoughts on the government's proposals

33% of you agreed that including weeks without work in a holiday entitlement reference period would be the fairest way to calculate holiday entitlement for a worker with irregular hours and part-year workers. This was on the basis that holiday pay should reflect the hours worked by an individual in a given year; that it makes it a level playing field for workers irrespective of how/when their hours are worked in the year; that it prevents situations where an irregular hours worker is entitled to more holiday than someone working regular hours; and that it makes sense from a practical point of view for those receiving manual timesheets if weeks not worked could be included.

Out of the 22% of you who did not agree, one of the reasons cited was unfairness in situations where for example, someone is not working because they are taking family leave. 43% were undecided on the issue.

In terms of a fixed holiday entitlement reference period of 52 weeks 46% of you agreed that this would make it easier to calculate holiday entitlement, while 25% of you said that it wouldn't (29% were undecided). It was generally thought by the 46% in favour that a fixed reference period would be easier to manage. Having a standard practice would provide greater clarity and transparency.

Those of you who weren't so keen on the idea felt that it would be more complicated to calculate and that it would not be easy to collect and store the information required for a long reference period. There was a feeling that having a fixed reference period wouldn't really help, and one of you expressed the view that if workers worked seasonally this would have an impact on their entitlement under the proposed fixed reference period. 

What about calculations in the first year of employment?

The government has proposed that irregular hours workers in their first year of employment should accrue their holiday entitlement at the end of each month based on the hours worked during that month. 54% of you agreed that this would be the fairest way of treating this period and that leave would be earned as the individual worked, though it was acknowledged that this might be time consuming for businesses that do not have systems in place to record hours in this way. Some of you use this process already.

The 19% of you who didn't agree felt that the proposal would increase the administrative burden and that introducing a separate process for new workers would cause confusion.

How about a flat average working day?

30% of you agreed that using a flat average working day would make it easier to calculate how much holiday a worker with irregular hours uses when they take a day off. You felt that it would be easier in that fewer calculations would be required and it would lend itself to a consistent approach. However, while it was felt to be a good idea, it was pointed out that it could be difficult to determine a flat average day.

Those who did not agree (26%) felt that it was not that simple and would be unfair for some people, especially as some employers have a wide range of contracts with differing day length duration. One of you observed that if you have the data and know the reference period it's just a calculation that the employer has to make and so there's no need for a flat average day. It was felt that the average does not reflect the reality and that it would be hard to manage.

Conclusion

Although we'll have to await the outcome of the consultation to see what will change it's been interesting to find out how you're currently tackling the calculation of holiday entitlement, and what you think the right approach is going forward. While the government's attempts to codify an area which is notoriously complex and to reduce the administrative burden of employers is to be welcomed, this shouldn't be at the expense of fairness. We'll keep you posted!


Emma Burrows

Partner, Head of Employment and Pensions

London

Emma Burrows

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Employment and pensions