Holiday leave and pay is a topic that most businesses have been very aware of lately with the long school summer break and parents taking time out of the business for family holidays.
But, as an employer, what are your responsibilities in relation to holiday entitlement, and holiday pay for your employees?
So, let’s go through the basics…
Each employee is entitled to a minimum of 5.6 weeks holiday each year, which equates to 28 days. This is made up of the 8 statutory holiday days, plus 20 days that can be taken at a mutually agreed time.
Whilst the holiday entitlement is made up in part of the statutory days, the holiday doesn’t have to be taken on those days if your business opens on a bank holiday
If you have an employee that is part-time, the employee is entitled to a pro-rata’d amount of holiday.
For example, if an employee worked 22.5 hours per week, and the standard working week is 37.5, their holiday calculation would look like this:
28 (days) divided by 37.5 (full-time hours) x 22.5 (part-time hours) = 16.8 days.
Working on a average of a 7.5 hour working day, 0.8 of a day is 6 hours
So the employee would be entitled to a minimum of 16 days and 6 hours holiday
That’s all nice and neat, and simple to work out and manage.
But, what if your employee works irregular hours? How is that worked out?
There is a nice simple way of doing this. It involved you keeping a running total of your employees hours worked. This are records you’ll probably keep as part of payroll processing, so it’s likely it won’t be an additional task. The holiday entitlement is 12.07% of the total number of hours your employee has worked for you.
So lets continue with the example we started above, but imagine that the employees hours vary based on what your business needs.
Let’s imagine your employee starts work for you this month, September 2018.
Week 1 – 3rd to 7th they work 22.5 hours
Week 2 – 10th to 14th they work 20 hours
Week 3 – 17th to 21st they work 19 hours
Week 4 – 24th to 28th they work 22.5 hours
Total hours worked in September 2018 is 84.0 hours.
Holiday entitlement is:
84 (hours) divided by 100 x 12.07 = 10.1388 holiday hours accrued
0.1388 hours is converted to minutes by:
60 (minutes) multiplied by 0.1388 = 8.328, or 8 minutes (rounded to the nearest)
Each pay period you should use the total hours worked from the commencement of the employees employment to calculated the hours, so that no minutes are lost in rounding, and the calculation is as fair as it can be.
You are entitled to define a holiday year, and the employee’s calculation can be based on that period, and begun again when their first anniversary is reached. The should be encouraged to take their holiday, and depending on your choice as an employer, you can allow your employee to carry some holiday forward into the next year, or ask them to take the holiday during the holiday year.
Holiday taken should be paid when the employee takes the holiday, and not paid as it’s accrued. This practice is known as ‘rolled up holiday pay’ and HMRC take a very dim view of it. Employees will not put the holiday money aside, and will find themselves with no income during their holiday period, discouraging them from taking the time off.
Holiday needs to be paid at the same standard rate as hours worked, and should be shown clearly on their payslip. It is also possible in some cases to shows holiday entitlement on a payslip, depending on the software being used.
Absence, and Holiday Accrual
Holiday is still accrued when an employee is absent, during sickness, maternity, paternity and adoption leave.
Holiday Accrual and Leavers
If an employee leaves you, you must ensure that they either take their holiday before they leave, or are paid in lieu of the holiday accrued. Depending on the needs of your business the employer can request the employee to take holiday during their notice period. The employee accrued holiday right up to the last day they work for you. The holiday pay should be paid in their last payroll payment, and this should form part of the values that are shown on the P45.
Simple enough, but PayrollAbility can make it simpler still. We offer holiday monitoring as part of our payroll processing and provide reports and an employee calendar each pay period. Employees can have their current holiday accrued, or holiday entitlement shown on their payslip each pay period, making holiday management easier for you.
Employee Self-Service Portal
As you grow, PayrollAbility’s Employee Self-Service Portal is the perfect tool to manage your employees holiday, sickness absence and access to payslips and P60’s. Each employee has their own secure log-on enabling them to see their holiday entitlement, apply for holiday and manage their own information.
Holiday requests will be sent to the nominated manager, and approved or declined, with a message being sent back to the employee. This can be divided by department, with different managers receiving the requests from their own team.
Sickness and other absences are also tracked in the individual online employee calendar, and an administrator will have sight of a calendar that shows all employee absence, making it easy to manage holiday requests and balance the needs of the business easily.
Payslips and P60’s are kept within the employees record, and the employee can access these at any time.
In addition, the management information reports generated during payroll can also be viewed online by authorised personnel, and access can be granted and restricted as the business needs dictate.
The Self-Service Portal is the ideal employee management tool, and a powerful step up for the small business as they grow.
Call the office today on 01384 92 90 20 to discuss your payroll needs and how the Self-Service Portal can make the difference when it comes to team management.
More information about holiday accrual and pay can be found on the HMRC website by following the link below: