ACAS guide to holidays and holiday pay

What
restrictions may an employer place on the taking of holidays? Do employees have
the right to paid leave on public holidays? How is a part-time worker’s holiday
entitlement calculated? How is a part-time worker’s holiday entitlement
calculated? These questions and more are answered in a new Acas  document outlining its advice on holiday
entitlement.

What
does the law say about holiday entitlement?

The
Working Time Regulations 1998 set down the minimum annual leave provisions for
workers although some employers may provide more generous contractual holidays.

Under
the Working Time Regulations, workers (including part-timers and most agency
and freelance workers) have the right to:


 four weeks paid leave each year (since
23.11.99)


 payment for untaken statutory leave
entitlement on termination of employment

The
provisions in the Regulations on holidays and holiday pay do not, at present,
apply to:


 doctors in training


 services such as the armed forces or
police or parts of the civil protection services where their activities
conflict with the statutory entitlement to paid annual leave.

From
1 August 2004 junior doctors will be entitled to the minimum statutory
entitlement of four weeks paid holiday.

Schedule
2 to the regulations makes special provisions for annual leave in relation to
agricultural workers. More information is available from the Agricultural Wages
Helpline on 0845 000 0134.

Where
are entitlements to holidays and holiday pay recorded?

Details
of holidays and holiday pay entitlement can be found in:


  the employee’s written contract, where there is one


  a written statement of employment particulars given to employees
by their employer.

The
written statement is required by law and must be given to employees by the
employer no later than two months after the start of employment.

The
document should contain sufficient detail to enable the employee’s entitlement
to be precisely calculated, including any entitlement to accrued holiday pay on
the termination of employment.

What
are public holidays?

Generally,
public holidays include bank holidays, holidays by Royal Proclamation and
‘common law holidays’. Banks are not allowed to operate on bank holidays. When
public holidays in the Christmas and New Year period fall on Saturdays and
Sundays, alternative week days are declared public holidays.

Do
employees have the right to paid leave on public holidays?

There
is no statutory entitlement to paid leave for public holidays.

Any
right to paid time off for such holidays depends on the terms of the worker’s
contract. If the contract is silent, the right to paid leave may have built up
through custom and practice.

Paid
public holidays can be counted as part of the statutory four weeks holiday
entitlement under the Working Time Regulations 1998.

How
is a part-time worker’s holiday entitlement calculated?

Part-time
workers are entitled to the same holidays as full time workers, calculated on a
pro-rata basis. For example, an employee who works three days a week is
entitled to twelve days paid holiday – their normal working week multiplied by
four.

Can
a part-time worker who works Wednesday to Friday claim the right to paid bank
holidays which fall on a Monday?

Only
if full-time workers at the same workplace are given paid leave for bank
holidays in addition to the statutory leave entitlements under the Working Time
Regulations.

The
Part-time Workers (Prevention of less Favourable Treatment) Regulations 2000
provide that part-time workers should not be treated less favourably than
full-timers in regard to their contractual terms. As most bank and public
holidays fall on a Monday, those staff who do not normally work that day could
be disadvantaged. Best practice suggests that such workers should be given a
pro-rata entitlement of days off in lieu according to the number of hours they
work.

What
is the position of agency or casual workers regarding entitlement to paid leave?

Agency
and casual workers are entitled to holidays under the Working Time Regulations
1998 in the same way as other workers. However, entitlement will depend on
their employment relationship, pattern of work and length of service and
therefore may be calculated on a pro rata basis. Where this is the case, wages
on each termination will normally contain an element of holiday pay where the
appropriate leave entitlement has not been taken.

When
does a leave year start?

The
Working Time Regulations 1998 stipulate that the leave year will begin


 on the date the worker began work for
the current employer, or


 1 October (the anniversary of the
Regulations becoming law), or


 on a date set by the employer which
should be set out in the written statement of main terms and conditions –
perhaps, for example, from April to March.

If
a worker starts work part way through the company’s leave year, the initial
holiday entitlement is ordinarily based on the period from that date until the
leave year ends. In most cases, employers will calculate entitlement for a part
year pro rata to the full year. So, if a worker begins work in July and the
company’s leave year runs from April to March, the entitlement will be
three-quarters of the full entitlement for that year.

Can
untaken leave be carried over to another leave year?

The
Working Time Regulations 1998 do not entitle a worker to carry leave over into
the following leave year. Neither may unused leave be replaced with a payment
in lieu except where employment is terminated. However, the contract may allow
contractual leave over and above the minimum entitlement to be carried over or
attract payment in lieu, if agreed.

What
is an accrual system?

The
Working Time Regulations 1998 were amended in 2001 to take account of a
European Court decision. The amendment allows employers the option of
introducing an accrual system for the taking of leave for workers starting
employment on or after 25 October 2001 but only during the first year of
employment. Under such an accrual system, leave is built up monthly in advance
at the rate of one twelfth of the annual entitlement.

For
example, a full-time worker in the eighth month of employment would have built
up 13.5 day’s leave. This calculation is based on annual entitlement of 20 days
x 8/12ths = 13.33 which is then rounded up to 13.5 days.

An
employer who chooses not to introduce the accrual system can still control the
timing and taking of leave – see What restrictions may an employer place on the
taking of holidays?

Does
leave accrue during periods of absence?

As
long as a contract exists between the employer and the worker, the statutory
minimum entitlement to paid holiday will continue to accrue during periods of
absence, such as long-term illness, ordinary and additional maternity leave.

However,
if a worker does not exercise their right to take annual leave within the
current leave year, then their statutory entitlement to paid holiday will be
lost as they are not allowed to carry this over to the next leave year.

How
is a week’s pay calculated?

For
each week of their statutory leave entitlement workers are entitled to be paid
a week’s pay calculated in accordance with sections 221-224 of the Employment
Rights Act 1996 as follows:

Workers
with normal working hours


 If a worker’s pay does not vary with
the amount of work done then a week’s pay is the amount due for a week’s work
under the worker’s contract. Pay for non contractual overtime is excluded.


 If a worker’s pay varies with the
amount of work done then the amount of a week’s pay is the pay for the normal
weekly working hours multiplied by the workers average hourly rate over the
preceding 12 weeks. This may occur under a piece work, bonus or commission
system. To calculate the average hourly rate only hours where the worker was
working, and the pay related to them, should be taken into account. Overtime
hours can be included although pay for these hours should be adjusted to the
normal rate. Any week in which no pay was due, for hours worked, should be
replaced by the last previous week in which pay was received for hours worked.


 Shift and rota workers, whose pay
varies because they work their normal hours at varying times and in varying
amounts in different weeks, have their week’s pay calculated differently. Their
average weekly hours of work, in the preceding twelve weeks, are multiplied by
their average hourly rate. The hourly rate is calculated as above and includes
any shift allowance which is payable.

Workers
with no normal working hours


 If a worker has no normal working hours
then a week’s pay is the average pay received over the preceding 12 weeks. Any
week for which no pay was due should be replaced by the last previous week for
which pay was due.

How
must a worker apply for leave?

Workers
are required to give notice to their employers if they wish to take a holiday.
The notice must be twice as long as the period of leave requested. For example,
a worker wanting one week’s holiday needs to give two week’s notice. The
employer can refuse permission by giving notice at least as long as the leave
requested, i.e. one week.

What
restrictions may an employer place on the taking of holidays?

Restrictions
on taking holidays may be expressly stated in the contract of employment,
implied from custom and practice or incorporated into individual contracts from
a collective agreement between the employer and trade union(s).

Employers
may choose to:


 shut down for certain periods during
which all or some groups of workers have to use their annual holiday entitlement


 nominate particular dates as days of
closure, when workers are expected to take annual leave (for example, over the
Christmas and New Year period)


 determine the maximum amounts of leave
that can be taken on any one occasion and also the periods when leave may be
taken.

Any
clash of requested holiday dates may be resolved by management – for example,
by considering the particular circumstances of the individuals concerned as
well as the needs of the business or by other means such as drawing lots or
agreeing ‘ first come, first served’.

In
the absence of an agreement on the taking of leave, the provisions of the
Working Time Regulations 1998 apply:


 an employer can require a worker to
take all or any of the leave to which a worker is entitled at specific times,
provided that the worker is given prior notice. The notice period should be at
least twice the period of leave to be taken. For example, employers wishing to
have a Christmas shut down spanning one week would have to give at least two
weeks’ notice to their workers.

What
can a worker do if holiday entitlement is denied?

Workers
denied statutory entitlements to paid annual leave under the Working Time
Regulations 1998 should seek to settle disputes with their employer by setting
out the problem and perhaps going through the grievance or appeals procedures,
where they exist. If it is not possible to reach an agreement in this way,
workers may submit a complaint to an Employment Tribunal within three months of
the refusal. If the complaint is upheld, the tribunal will make a declaration
to that effect and may award compensation to be paid to the worker by the
employer.

Is
there an entitlement to accrued holiday pay for leave untaken on termination of
employment?

Yes.
No matter how short the period of employment, the worker has the right to be
paid for leave accrued during that time. Under section 1 of the Employment
Rights Act 1996 employers should include in a written statement of employment
particulars, sufficient detail to enable the precise calculation of a worker’s
entitlement to accrued holiday pay on termination of employment.

Accrued
holiday on termination need not to be rounded to the nearest half day – payment
can be made for the exact amount of leave accrued.

Unless
a contract of employment improves the position, the provisions of the Working
Time Regulations 1998 apply and payment for untaken leave should be calculated
using this formula:

(A
x B) – C

where:


 A is the period of leave to which the
worker is entitled


 B is the proportion of the worker’s
leave year which expired before employment ended


 C is the period of leave taken by the
worker between the start of the leave year and the termination date

For
example, a worker who works five days a week, qualifies for four weeks’ annual
leave and finished employment after six months, having taken five days’ leave,
will be entitled to:

4
weeks x 0.5 – 1 week = 1 week’s pay or 20 days x 0.5 – 5 days = 5 day’s pay

How
can holiday pay be calculated for a worker who left after only three days in
employment?

An
employer should define in the written statement of employment particulars what
is a working week.

For
example, based on a 5 day working week, 20 statutory days paid holiday are due
in a year.

3/5
of a week = 0.6

0.6/52
x 20 = 0.2307692

This
sum represents approximately a quarter of a day. Therefore, payment on
termination for holiday accrued on the basis of three days work, would be
around two hours pay.

Employers
may use different methods to calculate holiday pay. If such methods are clearly
set out in writing, the potential for claims to be made at an employment
tribunal will be reduced.

What
is meant by ‘rounding up’?

‘Rounding
up’ to the nearest half-day can happen when a worker requests leave and has,
for example, only built up 0.3 of a day.

If
employment is continuing, the employer may round up the fraction to a more
convenient half a day’s leave. This ‘rounding up’ will be taken into
consideration when calculating the next period of leave.

However,
if a worker has accrued 0.3 of a day’s leave and his employment terminates, he
receives payment for 0.3 of a day’s leave only.

What
happens when a worker has taken more leave than their entitlement on
termination of employment?

Regulation
14 (4) of the Working Time Regulations 1998 states that an employer and worker
can draw up a ‘relevant agreement’( for example, in the contract of employment)
to provide that a worker will compensate the employer, whether by payment,
undertaking additional work or otherwise if leave already taken is in excess of
entitlement when employment ends.

There
should be a ‘relevant agreement’ in place; if not, and a deduction of
overpayment is made by the employer from the worker’s final wage payment, the
worker may have the right to submit a claim to an employment tribunal under
section 13 of the Employment Rights Act 1996 – the right not to suffer
unauthorised deductions.

What
needs to be considered when workers request extended leave?

There
is no general statutory right to extended leave without pay and whether it is
granted is a matter for agreement between employers, their workers or, if
appropriate, their trade unions. It may be helpful to have a policy on extended
leave which applies to all workers.

An
agreement that a worker should return to work on a particular date will not
prevent a complaint of unfair dismissal to an Employment Tribunal if a worker
is dismissed for failing to return as agreed. In such cases all the factors
should be considered and the need to act reasonably should be borne in mind
before dismissal is carried out.

The
Acas Advisory Handbook: Discipline and Grievances at Work
gives advice on
drawing up policy on extended leave and how to handle disciplinary matters.

Further
information

Acas
Advisory Handbook: Discipline and Grievances at Work
–order online at www.acas.org.uk or telephone Acas
publications – 08702 42 90 90

Agricultural
Wages Helpline – 0845 000 0134

The
following Department of Trade and Industry booklets are available at www.dti.gov.uk/publcations:
Written statement of employment particulars (PL700)
A guide to the Working Time Regulations 1998
Part-time work: the law and best practice

Notes

Many
employment rights are granted only to those termed “employees” or “workers” in
the legislation and not to the genuinely self-employed. The definition of
“worker” is somewhat wider than the definition of “employee”.

This
information was correct at November 2003. Information on the law
is provided for guidance only. An authoritative statement of the law can only
be given by the courts. The Acas National Helpline – tel 08457 474747 can
provide information on employment matters but cannot provide legal advice on
particular cases.

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