Holiday accrual, how does it work?

Holiday entitlements and pay are some of the most misunderstood and abused employment rights law in the UK. Statistics show that 1.8 million workers and employees are denied their holiday pay rights amounting to underpayments of £1.8 billion.

A number of myths abound in UK employment practice, especially around the concept of Holiday Accrual, Holiday entitlement and Holiday Pay.

Payroll professionals pride themselves on accurate on time payments, however, many holiday pay practices lack compliance with legal requirements or accurate payments! It is an HR management issue as well as a payroll challenge. Both are required to work hand in hand as partners.

Holiday law in relation to entitlements is governed by GB law under the Working Time Regulations 1998 and amendment adjustments that have been subsequently applied. We will refer to these as WTD.

Holiday pay is governed by the Employment Rights Act 1996 and amendment adjustments that have been subsequently applied. We will refer to these as ERA.

These regulations apply to all workers and employees, even part-timers and zero hours workers. Many may not believe that is true or possible, however, it is.

Accrual and first year of employment

The concept of accrual is widely misunderstood between the application of the relevant regulations and historic practice.

WTD reg 15A(2a) states ‘leave is deemed to accrue over the course of the worker’s first year of employment, at the rate of one-twelfth’.

Under reg 13 (4 weeks) and 13a (plus 1.6 weeks), the statutory entitlement across workers and employees is 5.6 paid weeks leave limited to 28 days. For those who start (and those who leave) part way through the year, their Entitlement is pro-rated by the number of months employed in that holiday year.

There is a myth that holiday accrues on the basis of hours or days worked, it doesn’t, it accrues on the basis of months employed and only for the first year of employment.

Entitlement: Weeks, days, hours?

So how do you calculate a part year coverage?

The law is unspecific about many holiday pay concepts, but very specific about others. Some will state that as the regulations are silent or limited on the operation of holiday in hours or days, that anything goes on whatever calculation the employer chooses to do. However, the requirement remains that whatever is operated it achieves the basis of the 5.6 paid weeks entitlement or the required prorate basis for time in employment. And the associated average weekly earnings to derive a holiday pay rate (52 paid weeks excluding zero pay weeks under ERA).

Other continue to promote a percentage basis such as 12.07%, a method formerly promoted by ACAS and others. However, the court of appeal ruled that such percentage methods were unlawful, not aligned with the WTD and ERA regulations and unlikely to achieve the correct entitlement and holiday pay amounts required within the law.

Regulation 15A(3) of WTD states ‘Where the amount of leave that has accrued in a particular case includes a fraction of a day other than a half-day, the fraction shall be treated as a half-day if it is less than a half-day and as a whole day if it is more than a half-day’.

This would apply no matter what basis of calculation were being undertaken. So a calculation in days is important to obtain a legal rounding up to half days and whole days even where holiday may be judged in hours. you would then apply the hours basis to the days derived including the half day rounding up elements.

An example

So the question was asked about an employee who commenced on 23rd August 2021 for a holiday year commencing on 1st January.

They work 5 days a week working 37.5 hours per week. How many hours entitlement for the remainder of the year do they have?

The example calculation was:

I’ve calculated – 37.5 x 5.6 = 210
210 / 365 x 131 (days remaining)
=75.36 – rounded to 75.5 hours (10 days)

When I’ve sense checked this on .gov calculator it’s telling me the employee is entitled to 90 hours (12 days).

Please can someone tell me where I’m going wrong as .gov doesn’t give the method.

Taking into account to the sections of the WTD regulations above there are two important aspects:

  • How many twelfths are there – from August through December there are 5 months or 5 twelfths
  • What number of days are derived for the rounding purposes, either to half or full days – for this example there are 5 regular working days

So suggest the BEIS calculation for entitlement is:

5 days x 5.6 = 28 days / 12 x 5 months = 11.66 which they are rounding up to 12 days x 7.5 hours per day = 90 hours.

For more information and assistance

PAYadvice.UK 27/8/2021

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