Adding a new starter to payroll? Here’s how to calculate annual leave.
How much leave are your people entitled to?
The law says all full-time workers are entitled to 5.6 weeks of statutory paid holiday a year. For most people working a five-day working week, that equates to 28 days’ leave.
How much leave do part time workers get?
The same amount of leave as their full-time counterparts, pro-rated to the amount of time they work. If you offer more leave than the statutory amount, your part-time people should get the same, again, pro-rated to their contracted hours.
How much leave do workers get when they work more than five days a week?
28 days is the maximum required by law. If your people work a six-day week, they’ll still only be entitled to 28 days, although there’s nothing to stop you voluntarily offering more.
Are bank holidays included in the leave calculation?
They can be, although some companies may choose to offer 28 days in addition to bank holidays. Whichever you choose, you should ensure everyone is treated equally and confirm your position in each worker’s contract.
How should annual leave operate in your business?
Every organisation has two options when it comes to calculating how much leave a worker has. You could choose to operate a leave year system or an accrual system.
How to operate a leave year system
A leave year runs from a date of your choosing for a full year. On day one of the leave year, a worker gets their full annual allocation of leave, which they can then use throughout the remainder of the year until the start of the next leave year. Your organisation’s leave year start date might be the 1 January. It might be the start of the financial year. It might be personal to each worker, perhaps starting on their birthday or the anniversary of their first day with your company.
It doesn’t matter which of these you choose, but it is important that you:
- pick one
- tell each worker about it by placing it in their contract; and
- are consistent across the business (i.e. if one person’s leave year starts on 1 January or on their birthday, everyone’s should)
If you don’t set a date for the start of each annual leave period, the default will be a person’s first day in the job (or the anniversary of it).
How to operate an accrual system
One potential issue with a leave year system is that, particularly in high churn sectors, presenting workers with a year’s worth of leave on day one may run the risk of backfiring as workers blaze through their leave at pace and then leave the business before year end.
This is when an accrual system can protect the organisation from risk. In an accrual system, annual leave ‘grows’ throughout the year. For each month worked, the employee gets one twelfth of their annual leave allowance.
This helps to ensure that:
- New starters can’t generally take annual leave in month one (although you can choose to be flexible in the case of individual requests)
- Workers always take leave they have earned, rather than using it in advance of accruing it
- Leave is naturally limited in the early months of an employee’s work with you, when they may be working a probationary period
You may choose to operate an accrual system during year one and switch to a leave year from year two.
When does leave begin to accrue?
Whether you offer a full year’s allowance or operate an accrual system, employees are entitled to have leave calculated and accrued from their first day in their role.
How much leave do new starters get?
It’s easy to calculate leave when a leave year runs from an employee’s start date. They either get their full allowance or begin to accrue leave on day one.
Where, however, you operate a leave year system which operates from another date, you will pro-rata the leave year based on the amount of leave left in the current year.
For example, if your leave year runs from 1 January to 31 December and a new worker starts at the end of June, you will pro-rata their 28 days’ leave to the time remaining in the current leave year. In this case, that would be 6 months = 14 days.
How much holiday pay should I pay?
On the face of it, it’s a simple calculation: 5.6 weeks of leave should be paid at 5.6 weeks of salary, but what’s the situation if you regularly ask employees to work overtime, or where bonuses or commission account for a significant portion of your payroll?
Here, all additional payments should be included in the calculation for at least four weeks of the holiday pay (although you can choose to pay it across the full 5.6 weeks). Where payments fluctuate, use an average.
Are workers entitled to carryover leave?
As ACAS notes, in most instances, unless you have agreed otherwise, no. Although you can choose to let workers carry leave (or some leave) over into the next leave year, you don’t have to. Any agreement should be included in worker contracts, and everyone should be treated equally.
There are some exceptions. These include:
- You must allow workers on maternity leave to carry over any outstanding leave entitlement.
- If a worker is on long term sick, the law entitles them to carry over four weeks of leave, which must be used within 18 months of their return.
- If a worker can’t use up their full leave entitlement for other reasons, for example, where work requirements dictated they weren’t able to take a holiday, you may let them carry leave over or pay them for the outstanding leave, but you should ensure such policies are clear and consistent and laid out either in staff contracts or the staff handbook.
- New rules were introduced for Covid, enabling workers to carry over four weeks of leave to be used over the following two years. Those rules still exist, but only apply where, for example, Covid sickness prevents a worker from taking leave or other Covid-related situations where it was not “reasonably practicable” for the worker to take leave.
Simplify your leave arrangements
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