12th May 2017
Holidays might be exciting for employees, but they can be a headache for HR.
How do you make sure that each employee is using their holiday allowance? How do you stop people from taking too much paid time off?
What about new employees that haven’t yet done a full year in the business?
How is annual leave calculated?
For simplicity, many businesses have a ‘leave year’. This can begin on any date, but will be the same each year.
On this day, employees are given all of their annual leave. They’ll need to use all of their allowance within the next 364 days.
New employees will be provided with a pro rata holiday allowance. If the leave year starts on 1st January and an employee joins on 1st July, they’ll only be given half of the usual annual leave.
Importantly, holiday allowance can be different from one new employee to the next. Calculations need to consider the number of hours that an employee works.
Someone that works full time may accrue 7 full days of holiday in the first three months of their job, if they’d usually be given 28 days of annual leave. Someone that works part time may receive the equivalent according to their hours.
What does it mean to be accruing holiday or annual leave?
In the first year of employment, the accrual system ensures that the new employee doesn’t take all of their holidays at once. It’s the preferred system for many employers and HR departments.
If the leave year began on 1st January and the employee joined on 1st April, they would not automatically receive 21 days of annual leave. Instead, they would receive just over 2 days of holiday entitlement for each completed month in the job.
How much holiday needs to be taken?
Some employees will seize any opportunity for a little time off work. It seems like they’ve booked their annual leave within minutes of it being available.
Other employees aren’t so prepared. For whatever reason, they don’t book holidays whenever they’re available.
Employees must take at least 28 days of holiday each year. This is the minimum that an employer can offer. It cannot be carried over. It needs to be taken within the leave year in which it’s received.
Some employers offer additional holiday entitlement, perhaps as a reward for long service. Employees might lose this additional allowance if it isn’t taken, or might be allowed to carry it over. Their contract should tell them which of these is the case.
Employers can choose to pay their employees for any additional holiday allowance, above the statutory minimum, that has not been taken by the end of the year.
What about accruing holiday pay?
Employees should be paid as normal for their statutory annual leave. This means that their normal wage, and any guaranteed overtime, should be paid during their time off.
When an employee’s pay varies from week to week, holiday pay should be calculated using their wages from the previous 12 weeks.
What happens when an employee leaves their job?
It’s unlikely that an employee will leave their job on the last day of their leave year. As a result, they’ll need to be paid for any holiday that they’ve accrued.
If an employee leaves 6 months into a leave year, they should be paid for half of their usual holiday entitlement (minus any days that they have already taken).
In the second year, and beyond…
After their first year, each employee is entitled to receive all of their holiday allowance at the start of the leave year. This makes it easier to plan for holidays, perhaps taking 10 days of leave for an Easter holiday when they otherwise would not have been able to.
Employers have a right to dictate when annual leave must be taken. If they have good reason for doing so (perhaps because the business shuts down for two weeks every summer), then they can use their employee’s annual leave on any specific dates.
Making it easier to manage holidays and accruals
Managing holiday entitlement can be complicated when you have multiple employees to keep track of.
Using Staff Squared HR software can save you from the embarrassing realisation that you’ve approved too much holiday, or have forgotten an employee’s allowance.
Each employee’s ‘holiday stats’ can be quickly viewed. This won’t show you how many times they’ve been camping or how many days they spent in Florida, but will show you their holiday allowance and how much has already been used.
With Staff Squared, you can set your HR software up to notify you when holiday requests are incoming, and warn you if approval would push an employee past their annual allowance.
The software also automatically calculates accruing holiday. When someone starts or leaves, it works out exactly how much holiday allowance they’re entitled to pro rata. No need to bring out the calculator!
Holiday approval processes can be automated if required. You can choose to manually approve all holiday requests or to automatically approve a request if nobody else in their team has booked time off.
If you would like to double check your calculations, check out our Holiday Calculator!
A final note: maternity, paternity and adoption leave
Just as it does when an employee is new, holiday allowance accrues during extended periods of absence such as maternity, paternity and adoption leave. Similar considerations should be taken in to account with shared parental leave
When the employee returns to work, they will have accrued annual leave that they can take as additional time off. If maternity, paternity or adoption leave spans two of the company’s leave years, then it will not necessarily be carried over.
Holiday leave can be added to the start or end of maternity leave. Many people choose to add it to the beginning so that they do not risk losing any at the end of the company’s leave year.