Holiday entitlement guide for small businesses

Here is our simple how-to guide on employee/worker holiday entitlements in the UK. This guide does not advise specifically on holiday pay, just holiday entitlement and the various rules around workers taking holiday.

This guide should help HR people and owner-managers administrate their employee holidays easily and simply. This article is not legal advice and should be backed up by specialist advice if necessary.

Holiday entitlement: important terms to understand

There are a few things you need to know the definition of if you are going to be working with holiday entitlements:

1. Full time equivalent (often referred to as “FTE”): this is a simple but important concept. When you are dealing with part-time employees, it’s useful to talk about their “FTE” so that you can have a proper comparison. For example, an employee might work 50% of the time and accrue 12.5 days holidays per year, but their FTE is still 25 days, the same as your full-time employees.
2. Part-time workers’ discrimination: all part-time workers are entitled to the same holiday entitlement as full timers, just pro-rated. Even if an employee works only one hour per week (like a paper round), if they are an employee or worker, they are entitled to accrue holiday and take it.
3. Bank holidays: Statutory annual leave entitlement can include bank holidays; however, some employers choose to provide some or all bank holidays as additional leave for their holiday year. Note that this can be as paid or unpaid leave. It is good practice to make this clear within a worker’s contract and company documentation so no confusion arises.
4. The holiday year: most companies choose the calendar year as their holiday year, but any “year” can be chosen – for example, from April 1^st to March 31^st is quite common.
5. Working Time Regulations (WTR) (1998): this piece of UK government legislation sets out many of the rules and regulations around holiday entitlement and how/when staff can take their holidays. We will be referring to these regulations throughout.

Statutory holiday entitlement

Both employees and workers are entitled to paid holidays. A “worker” is a type of quasi-employee who provides services personally for a reward and is to some degree under the employer’s control.

For a more detailed assessment of what a worker is, see this government guide (note: this is a complex and evolving area of law. If you have people working for you who are not getting paid holiday, you should probably take legal advice about their employment status).

For the purposes of this guide, a reference to “employee” includes workers too.

Special rules for certain sectors

Some special rules relate to certain sectors, such as the police and aviation workers. This guide does not provide guidance for those sectors.

The holiday year

Companies must have a leave year by which to calculate holiday entitlement and pay. Many employers choose the calendar year, but others choose the financial year, or some other “year” which has relevance to the organisation.

If you do not choose a holiday year, then employees’ holiday years will begin on their start date for employment. This can get very complicated to calculate and is not recommended.

Holiday accrual

Under the WTR 1998, a leave year commences on the date set out in a relevant agreement, such as a contract of employment, staff handbook, or collective agreement.

In someone’s first year of employment, if they start partway through the year, leave entitlement for the part of the year they work should be calculated pro rata. This is governed by accrual provisions, meaning that leave accrues at 1/12 of a full year’s entitlement at the start of every month. If the amount accrued includes a fraction of a day that isn’t a half day, this should be rounded up to the next half/whole day.

After the first year, the whole annual holiday entitlement becomes available at the start of each leave year. However, employers can limit how much holiday can be taken at once through a provision in a contract/staff handbook.

Learn more: Holiday accrual guide

Holiday entitlement for full time employees

Employees are entitled to 5.6 weeks’ paid leave per year. For a regular, full-time employee working 5 days a week, this means 28 days per year. Full-time employees may not have less than 28 days’ holiday – although the 28 days may include the 8 bank holidays available in the UK.

Note that people working more than 5 days per week cannot get more statutory entitlement. Also, you can choose to offer additional contractual holiday entitlement above the statutory amount as an employee benefit. In this guide we focus on the statutory amount.

Read more: How to calculate holiday entitlement

Holiday entitlement for part time employees

Part time employees have the same rights to holiday as full time employees do. However, how much holiday they are entitled to needs to be calculated pro rata.

Full time employees are statutorily entitled to 5.6 weeks (28 days) of holiday leave a year. So, to work out how much annual holiday a part-time worker is entitled to, you need to multiply the number of days they work a week by 5.6.

You may wish to round up to the nearest day to make managing and tracking these entitlements easier (note: you legally cannot round down as the employee would be missing out on annual leave they are entitled to).

If your employees are entitled to contractual holiday allowance on top of their statutory entitlement, this needs to be calculated pro rata too.

Read more: How to calculate holiday entitlement for part time workers

Bank holiday entitlements for part time employees

There are 8 bank/public holidays in England and Wales; staff don’t have a statutory right to take these days off. Bank holidays can be included within statutory entitlement or in addition to it.

With part time staff, you need to be careful that all workers are receiving these days off fairly, as it may be the case that some staff happen to work on bank holidays and others don’t. Not doing so fairly may be in breach of the Part Time Worker Regulations (2000). Many employers address this by providing a pro rata entitlement to bank holidays.

Read more: Bank holiday entitlement for part time workers

Holiday entitlement for employees who work regular hours

Say an employee works on an hourly basis instead of days - for example, a shift worker may work 4 hours on one day and 6 hours on another. It can be more difficult to work out holiday entitlement in these cases, but it is possible to do so when you calculate by hours worked per year.

As with part time workers who work full days, you start by working out holiday entitlement for full-time employees. The statutory minimum for full-time employees is 5.6 weeks (28 days), which can include bank holidays (paid); also make note of any bank holidays (paid/unpaid) or contractual entitlement you offer on top of this.

You calculate entitlement by multiplying the number of hours a person works per week by 5.6. For instance, someone who works 20 hours a week would have 112 hours of holiday. You can translate this into 16 days' leave if your full-time working day is 7 hours, or 14 days' leave if you have an 8-hour work day; if you want all leave to always be in full days, you cannot legally round down hours, so may need to round a total up.

As another example, say you offer all bank holidays (paid or unpaid) on top of statutory minimum entitlement. That equates to 36 days per year for full-time workers, or 7.2 weeks (36 ÷ 5). In this case, someone working 20 hours per week can have 144 hours’ annual leave.

Read more: How to calculate holiday entitlement in hours

Holiday entitlement for employees who work irregular hours

Calculating holiday entitlement for workers with irregular hours requires a different methodology. In many cases, using the percentage accrual method helps employers work out holiday entitlement for irregular-hours employees, with the most accuracy possible.

The approach to this method is that workers accrue statutory holiday at a rate of 12.07% of the hours they work. This is because the standard working year is 46.4 weeks (52 weeks minus 5.6 weeks statutory entitlement) and 5.6 weeks is 12.07% of 46.4 weeks.

With this calculation method, holiday entitlement is just over 7 minutes for every hour someone works. As an example, if someone has worked 40 hours, the calculation would be as follows:

If you wished to round the amount to the nearest hour, you would always legally need to round up.

Please note that this method is not officially recognised by the WTR (1998). This is because it does not comply with the WTR (1998) in all cases, as a person's working hours can change throughout the year. The case of Harpur Trust v Brazel (2019) has highlighted the difficulties of this approach where the worker is a "part-year worker"; in other words, where there are weeks in the year where the worker is under contract but is not working or on paid annual leave. It is therefore important to review holiday entitlement for workers with irregular hours frequently to ensure it remains accurate.

Learn more: How to calculate holiday entitlement for casual/zero hours workers

For a quick summary version of the different types of holiday entitlement calculation you may expect for different types of employee/worker, see our handy infographic:

Holiday entitlements for starters and leavers

As workers who are either starting or leaving partway through a leave year, starters and leavers add extra layers of complexity when it comes to holiday entitlement.

Holiday entitlement for new starters

An employee who starts part way through the year is entitled to pro-rated holiday entitlement for that year. The WTR (1998) provides rules around holiday for a worker who is within their first year of work. This has been devised to control how new workers take leave.

Within their first year, a worker’s annual leave accrues at the rate of 1/12 of a full year's entitlement at the beginning of each month. If this includes a fraction, this should be rounded up to the nearest half or whole day/hour (it cannot be rounded down). The WTR (1998) doesn’t provide rules around holiday accrual for employees beyond their first year of work.

Learn more: How to work out holiday accrual

Note that, in addition to this:

• The employer may refuse a holiday request in any event; and
• Many employers choose to apply some rules around the taking and accrual of holidays.

Learn more: Calculating holiday entitlement for new starters

Holiday entitlement for leavers

For staff who work a set number of days each week, calculating holiday for a leaver can be done with this following formula:

The statutory entitlement amount will need to be adjusted for part-time workers. Then you simply take away the amount of holiday the worker has already taken from the result. If a leaver has holiday left to take, encourage them to request this before they finish, or you can offer a payment in lieu of holiday.

If someone finishes work partway through a month, you need to make the calculation as accurate as possible by adding a part month to the time worked in months e.g. if a worker is finishing on May 10th, you can express this as 4.3 (four months and a third).

You can calculate remaining holiday entitlement for a leaver in hours too. The formula for this is similar to the one above, but replace days with hours.

For someone who works irregular hours (a casual or zero hours employee, for example), you can use the 12.07% method to calculate their remaining entitlement as a leaver, using the formula:

Learn more: Calculating holiday entitlement for leavers

Holiday notice

There are some statutory rules relating to the notice an employee must give etc. These rules are basic and are usually supplanted by far more sensible rules set out in employer’s contracts!

1. The employee must give double the notice of the length of holiday. For example, for a two-week holiday, the employee must give four weeks’ notice.
2. The employer may then refuse the holiday request, but they must give as much notice as the number of days they are refusing. So, for a two-week holiday refusal, the employer must give notice at least two weeks before the leave was due to start to say “no”.

Many employees get confused about their rights relating to the taking of holiday. There are numerous examples of employees booking expensive holidays prior to getting permission. This can often result in a catastrophic breakdown with the employer when the holiday request is refused. Whilst the statutory rules do give the employer the right to refuse holiday requests if they follow the statutory rules, it is far better to set out some clear rules in the company handbook and to require employees to get permission prior to booking holidays.

It is also possible for employers to require that employees take their holidays at certain specified times. Some businesses have a “shut down” for example. The statutory rules require employees to give twice the period of notice as the period of holiday; however, again, it is far more sensible to set out the rules (or even the holiday periods) in the contract or company handbook.

Learn more: Holiday leave notice: how to manage holiday requests

Carrying over holiday

Under the WTR (1998), the general rule is that staff need to take their statutory annual leave within the year to which it relates and cannot carry over this leave. Additional contractual leave may be carried over depending on the agreement between employer and employee.

There are exceptions to the rule that staff can’t carry over statutory leave. If an employee has been unable to take statutory holiday due to maternity leave or sick leave, for example, the employer must allow the employees to carry it forward.

If an employer does not enable the employee to take holiday, then it also carries over. This could happen, for example, if an employer wrongly tells an employee that they are not entitled to holidays. This could also happen if the employer has a mistaken belief that the employee is an independent contractor (and not an employee or worker).

Learn more: Holiday carry over: a guide for employers

Encouraging staff to take annual leave

It’s important that employers clearly outline staff holiday entitlements and take steps to encourage their staff to take annual leave. Employers also need to make it clear that statutory holiday entitlement may be lost if not taken (except in extenuating circumstances such as those mentioned above). Keep records of your communications on holidays as proof that steps have been taken.

Learn more: Encouraging staff to take annual leave

Time Off In Lieu (TOIL)

Some employers choose to give the employee time off in lieu (TOIL) instead of paying them for overtime. TOIL can be given when someone has worked more than their contractual hours or on a public holiday that would usually be used for annual leave. TOIL is taken in addition to their annual leave entitlement and is an agreement between employee and employer.

There are risks around using TOIL, as employees may become overworked and there may be confusion over time owed if it isn’t recorded accurately. It’s best to draft a written agreement with employees and have a robust system for recording and approving TOIL.

Learn more: Time off in lieu (TOIL) explained