Annual leave

Understanding Annual Leave Entitlements

At AHACCOUNTANTS, we understand that managing annual leave entitlements can be complex. If you are an employer in the Nottingham area, we are here to provide assistance and any additional information you may need.

Background

Under the Working Time Regulations 1998 (as amended), workers are entitled to paid statutory annual leave of 5.6 weeks (equivalent to 28 days for those working five days a week). This basic entitlement includes bank holidays. This annual leave allowance aligns more closely with holiday entitlements in other European countries, which often provide more generous allowances—workers in Ireland receive 29 days, while Austria boasts the highest minimum at 38 days.

Payment for Annual Leave

Workers are entitled to pay for their annual leave, calculated at the rate of one week’s pay for each week’s leave. For employees with standard working hours, this is based on their contracted basic hours. Regular contractual bonuses or allowances (excluding expense reimbursements) are also included.

For workers with variable pay, a week’s pay is based on their average weekly earnings. For leave years starting before April 1, 2024, this average is calculated from the previous 52 weeks, excluding any weeks without pay. Starting on April 1, 2024, a new accrual method will be implemented, allowing holiday entitlement to be calculated as 12.07% of actual hours worked in a pay period.

Additional Elements in Pay Calculations

When calculating holiday pay, several additional elements must be considered:

• Commission: Following a ruling from the European Court of Justice (ECJ) upheld by the Court of Appeal, commission linked to sales made while working must be included in holiday pay calculations.
• Overtime: Guaranteed and non-guaranteed overtime, as well as regular voluntary overtime payments, should also be factored in. Non-guaranteed overtime must be accepted by the employee when offered, while voluntary overtime can be declined. If voluntary overtime is infrequent, it may be excluded unless it becomes regular or recurring.

These additional elements only apply to the four weeks of statutory leave required by European law, which is less than the UK’s minimum of 5.6 weeks.

Requesting Leave

Employees should be allowed to choose when to take some of their leave. However, many employers set conditions, such as limiting the number of workers who can take leave simultaneously or capping consecutive days off.

Employers should have a clear procedure in place for leave requests, including notification requirements. If no specific procedure is outlined, employees must provide at least twice the length of the leave period as notice. Similarly, employers should give notice of the same length if requiring employees to take leave at specific times.

First Year of Employment

Workers accrue annual leave on a pro-rata basis during their first year of employment. This means their entitlement grows as they work, accruing at a rate of 1/12 of the annual entitlement starting on their first day of each month. If the calculation doesn’t yield a precise number of days, it should be rounded up to the nearest half day.

Annual Leave for Part-Time Employees

For part-time workers, time off for bank holidays should be pro-rated. They are entitled to 5.6 weeks of holiday, calculated based on their weekly hours, regardless of whether they work on bank holidays. From April 1, 2024, this will be based on actual hours worked using the 12.07% accrual method.

The ECJ has ruled that rolling up workers’ annual leave payments is unlawful; however, for leave years starting on or after April 1, 2024, employers can use rolled-up holiday pay for irregular-hours or part-year workers.

Contractual Annual Leave Entitlement

Employers can offer workers additional annual leave through contractual agreements. Unused additional leave may be carried over to the next leave year, often at the employer’s discretion, depending on contract terms.

Annual Leave During Maternity and Adoption Leave

Employees continue to accrue both statutory and any additional contractual annual leave during ordinary and additional maternity leave.

Sickness During Holiday

Employees can now reclassify statutory holiday as sick leave if they fall ill while on prearranged holiday. This allows them to take the missed statutory holiday later. If they cannot take the remaining statutory holiday in the same leave year, it may be carried over to the next year. For employers offering more than 5.6 weeks of holiday, there is no obligation to reclassify additional (contractual) holiday as sickness absence.

Employees on sick leave can request to have their absence reclassified as statutory holiday to receive holiday pay. If they choose not to take their outstanding statutory holiday before the current leave year ends, they should be permitted to carry it over. Upon returning from sick leave, employees can take their statutory holiday entitlement for the current year, but if time is insufficient, they should be allowed to carry it into the next year.

Recovery of Overpayment of Holiday

Contracts should clarify that if an employee takes more holiday than entitled within a leave year, the employer can recover the overpayment by deducting it from the employee’s wages or salary. It is advisable for employers to consult with employees before making such deductions.

How We Can Help

If you are an employer in the Nottingham area and need assistance or more information regarding annual leave, please don’t hesitate to contact us at AHACCOUNTANTS. We are happy to provide detailed advice tailored to your needs.