Q&A: Employee Holiday Entitlement and Holiday Pay Explained

13th June 2017

Q&A: Employee Holiday Entitlement and Holiday Pay Explained

Employee holiday entitlement and holiday pay explained

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As we write this blog the rain is lashing off the window beside us, which must mean that it’s summer in Britain!  Summer is synonymous with holidays, but what is the entitlement to both time off and the right to be paid for it?  The law is surprisingly complicated here and there are still errors and misunderstandings about who is entitled to what, so let’s see if we can cast a ray of light on the subject, since the British weather seems unlikely to help…

Holidays and the right to be paid while you are on holiday is a health and safety right and is derived from and protected by the EC Working Time Directive of 1988, implemented in UK law by the Working Time Regulations 1998 (WTR), amended in 2003.  Holidays are not just an indulgence, a break from work is recognised as being good for your employees’ wellbeing. This means that employers should remove any incentive, even the less obvious ones, for employees to work through their holidays, for example, by offering to buy back unused holiday at the end of the holiday year.

How much holiday are employees entitled to?

The basic entitlement in the WTR is 5.6 weeks annually, this works out at 28 days for people working 5 days per week. Most contracts of employment express this as 5.6 weeks inclusive of bank holidays or as 20 days plus the eight bank holidays.

If you have part time employees, you work out their holiday entitlement pro rata, based on the number of days they actually work.  This is true also for employees who work for a fixed period, for instance, employees on a fixed-term 6 month contract.

Oddly, the entitlement is capped using the 5-day working week total of 28 days.  If your employees work more than 5 days per week they are not entitled to more holiday, the cap remains at 28 days.

Who is entitled to holiday pay?

Essentially there are three different relationships we need to consider; employees, freelancers and workers.

Employees are the most straightforward to identify and they are entitled to holiday leave and pay.

Freelancers are not normally entitled to holiday pay, this is because their relationship with their client is business to business and they will be working for themselves, or possibly through their own company.  They are therefore responsible to themselves both for time off and for paying themselves (or not) for that time.

Finally, workers, who are also entitled to holiday leave and pay. A worker is defined as someone who works under either:

  • A contract of employment; or
  • Any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.

Apologies for the length of that explanation but it’s unavoidable.  A worker could be an employee or they could be something that isn’t quite an employee in law but is entitled to certain rights and protections.

The key to understanding who is entitled/isn’t entitled is the relationship between the parties.  Where that is a more traditional master-servant relationship, holiday pay is an entitlement.  Where the relationship is clearly client-business, then there is definitely no right to holiday leave or pay from you. Anything else is a grey area.  Really the best we can suggest is that if you are unsure about your obligations on holiday leave or pay, give us a call or drop us a line and we can help you out.

For more details on worker see https://www.employease.co.uk/locum-pharmacist-is-held-to-be-a-worker-by-employment-tribunal/ or https://www.employease.co.uk/uber-decision-affect-business/.

To make it easy to read, the rest of this Q&A talks about employees, but if you have workers, the rights are equally applicable to them.

Do employees have a statutory right to take bank holidays off work?

There is no statutory entitlement that allows employees to insist on taking a bank holiday off work.  Whether employees work them or not will boil down to your policy and whether or not individual employees can take bank holidays off as part of their overall holiday entitlement.

We still encounter a number of employers who mistakenly believe that by having their part-timers work Tuesday to Thursday they avoid the requirement to pay holiday pay for Bank holidays as these nearly always fall on Mondays or Fridays.  All part-timers are entitled to a proportion of the bank holidays based on their overall hours worked in a week.

It is not compulsory to give any member time off on a bank holiday or to pay increased rates of overtime to those who work on bank holidays.

Is rolled-up holiday pay legal?

When dealing with people with irregular patterns of work, employers often ask us if it is possible to state that the hourly/daily rate of pay includes holiday pay.

The problem with this is that it is a disincentive to take holiday and therefore illegal. In trying to address one problem employers unwittingly created another.

The government guidance on rolled-up holiday states: “Holiday pay should be paid for the time when annual leave is taken. An employer cannot include an amount for holiday pay in the hourly rate (known as ‘rolled-up holiday pay’). If a current contract still includes rolled-up pay, it needs to be re-negotiated.”

So how do you calculate holiday entitlement for zero hours or irregular patterns?

The amount of holiday pay can be calculated on the basis of the number of hours (or days) worked. Employees and workers accrue holiday at the rate of 12.07% of the hours worked, which is calculated as follows: 5.6 weeks divided by 46.4 weeks x 100 (46.4 weeks is 52 weeks less 5.6 weeks). For more, see here: https://www.gov.uk/calculate-your-holiday-entitlement

Do you include commission when you calculate holiday pay?

Over recent years, there have been a number of court cases on whether variable pay such as commission or overtime should be included in the calculation of holiday pay. These cases generally haven’t gone in the employers’ favour.

If an employee earns commission, they miss the opportunity to earn it when they are on holiday. What the cases say is that you need to pay an amount to cover that missed opportunity when you pay holiday pay to employees who earn commission.

Employers have to tread carefully when making these calculations to ensure that they are not creating a disincentive to take holidays, this isn’t helped by the fact that there is as yet not guidance available to assist with the calculations…

What happens if someone if off sick whilst on holiday?

Holiday is for resting and an employee is not resting if they are sick. It is important therefore that an employee who falls ill whilst on holiday informs you immediately so that you can pay sick pay (company or statutory) for the period that the employee was ill.  As an aside, holiday pay continues to accrue even when an employee is off work with a long term illness.

For more specific information about employee holidays and holiday pay, call either Amanda Galashan or Julie Calleux at Employease on 0333 939 8741, or email us at info@employease.co.uk.

We hope you find this update useful. This blog does not constitute legal advice on any particular situation you may have.

© Employease: The Employment Practice Ltd 2017

Twitter: https://twitter.com/employease

Blog: https://www.employease.co.uk/viewpoint/

Web: https://www.employease.co.uk

Company registered in England Reg No: 2931940

Registered Office: 40 Woodford Avenue, Gants Hill, Essex IG2 6XQ



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