How to calculate holiday entitlement for your employees

How to calculate holiday entitlement for your employees

Calculating holiday entitlement for your employees shouldn’t require a PhD in Advanced Mathematics; that’s why we’ve put together this simple guide that shows you how to calculate annual leave for your full and part time employees, along with new starters, leavers and shift workers.

According to legislation from the UK Government, (almost) all workers who work a 5-day week are entitled to at least 28 days of paid annual leave per year. Equivalent to 5.6 weeks of holiday, employers can choose to opt for a leave year or accrual system when calculating the holiday entitlement of their employees.

What does the leave year system mean?

Under the leave year system, employers define the dates of their annual leave year during which employees may use their allocated annual leave.

Naturally, not all new starters commence their employment on the first day of an employer’s leave year.

Therefore, if a worker starts their job part of the way through a leave year, their holiday entitlement should be calculated on a pro-rata basis depending on how much of the leave year remains.

For example, a worker who works 5-days a week has entered your employment 3 months into your leave year and your holiday entitlement is 28 days.

28 / 12 x 9 remaining months = this employee would be entitled to 21 days.

What does the accrual system mean?

The accrual system does what it says on the tin. Every month that an employee works, they accrue 1/12th of their holiday entitlement. The Working Time Regulations 1998 allows employers to use an accrual system to work out how much holiday leave a worker has built up during their first year of employment.

For example, a worker who works 5-days a week has been in your employment for 6 months and your holiday entitlement is 28 days.

28 days / 12 x 6 = this employee would be entitled to 14 days of annual leave for the 6 months they have worked for you.

In the second year of their employment, workers that have been subject to an accrual system will then be entitled to all of their holiday allowance on the first day of the new holiday year.

How do you calculate holiday entitlement for new starters?

Whether you’re calculating holiday entitlement for new starters or leavers; the process is a relatively simple one. Of course, the specifics of how holiday entitlement is calculated will vary according to your company’s employment contract.

You either calculate this monthly as detailed above or by the actual or working days remaining in the holiday year.

To calculate holiday by the actual (i.e. 365 days or 366 in a leap year) days in a year simply work out the number of days between an employee’s start date and the end of the year and divide this number by 365.

For example, if an employee starts on 1st September, there are 121 days between their start date and 31st December (assuming your holiday year runs January to December).

Simply divide 121 by 365 (or 366) and multiply by 100 to arrive at the percentage of full holiday allowance this employee is entitled to.

121 / 365 = 0.33 x 100 = 33%

If your holiday allowance for a full year is 28 days, this employee would thus be entitled to 33% of 28 days which is 9.24 days.

By law, you cannot round down the leave. It is at an employer’s discretion whether you round it up or not, but in this case, you may choose to round up the 9.24 remaining days to 9.5.

Alternatively, you can calculate holiday by the days an employee physically works in a year (i.e. 260 days). Simply work out the number of working days between an employee’s start date and the end of the year and divide this number by 260.

If an employee starts on October 1st, there are 64 working days (excluding weekends and 2 UK public holidays.

Divide 64 by 260 and multiply by 100 to arrive at the percentage of full holiday allowance this employee is entitled to.

64 / 260 = 0.25 x 100 = 25%

If your holiday allowance for a full year is 28 days, this employee would thus be entitled to 25% of 28 days which is 7 days.

How do you calculate holiday entitlement for leavers?

Assuming an employee’s holiday entitlement is 28 days per leave year and an employee is leaving 90 days into the holiday year, the calculation can be made using similar formulas to calculating entitlement for new starters.

To calculate the holiday entitlement by the actual (i.e. 365 or 366 days) days in a year simply work out the number of days between the start of your holiday year and an employee’s leaving date and divide this number by 365 (or 366).

For example, if an employee’s leaving date is 31st March and your holiday year starts on 1st January, there are 90 days between these two dates. Simply divide this by 365 and multiply by 100 to arrive at the percentage of full holiday allowance this employee is entitled to.

90 / 365 = 0.25 x 100 = 25%

If your holiday allowance for a full year is 28 days, this employee would have been entitled to 25% of 28 days which is 7 days.

Bank holidays and any holidays already taken should be deducted from the 7 days they have accrued.

If any holiday entitlement remains, this should be paid with their final pay.

Equally, if it transpires the departing employee has taken more holiday than the days accrued, employers are able to reclaim these days as a deduction from their final salary.

You can also calculate holiday entitlement for leavers by the number of actual days worked (i.e. 260 days).

For example, if an employee is leaving on 30th September, they have worked 191 days so far this year (excluding weekends and 4 UK bank holidays).

Again, simply divide this by 365 (or 366) and multiply by 100 to arrive at the percentage of full holiday allowance this employee was entitled to.

191 / 365 = 0.52 x 100 = 52%

If your holiday allowance for a full year is 28 days, this employee would have been entitled to 52% of 28 days which is 14.5 days.

How can you calculate holiday entitlement for part time workers?

The calculations listed above are for the typical employee working 5 days a week. If you need to calculate holiday entitlement for part time workers, the formula is based upon the entitlement provided by the government (the equivalent of 5.6 weeks of holiday for every worker).

As with full-time workers, part-time workers are also entitled to the equivalent of 5.6 weeks of paid holiday. This is calculated in proportion to the number of days they work.

Therefore, if an employee works 3 days per week, they would be entitled to at least 16.8 days of annual leave per holiday year (3 days x 5.6).

How can you calculate holiday entitlement for hourly paid or shift workers?

If you have employees that are paid hourly or have no set hours of work at all (i.e. employees with a zero-hour contract), the Working Time Regulations of 1998 dictate they also qualify for the equivalent of 5.6 weeks of paid annual leave, calculated in proportion to the hours they work.

Employees with variable working hours accrue holiday at the rate of 12.07% of the hours they have worked. (That is: 5.6 weeks / 46.4 weeks (i.e. 52 weeks minus the 5.6 weeks an employee is on holiday) x 100 = 12.07%.

Therefore, if an employee has worked 25 hours in one week, they will have accrued 3.01 hours of holiday.

We know just how headache-inducing calculating holiday entitlement can be, that’s why we’ve made it simple. Automatically calculating holiday allowances for new starters and leavers, Natural HR makes these tedious calculations a thing of the past. Get a free demo to find out how you can ditch these calculations for good.

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About Natural HR

Natural HR is a cloud-based HR software company for growing businesses with 100+ employees. Since launching in 2010, we’ve been building a comprehensive suite of HR functionality that equips the small to medium-sized enterprise with everything needed to build an effective and efficient HR operation.

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