In this in-depth holiday accrual guide, senior employment lawyer Matthew Ainscough of Bell & Buxton incorporating Ironmonger Curtis explains how to work out accrued holiday for employees with a variety of working patterns.
In this post, I will have a look at how holiday (or annual leave) accrues. Most workers have a right to a minimum of 5.6 weeks' paid annual leave under the Working Time Regulations 1998 (WTR 1998). This amounts to 28 days for a full-time employee. However, many will also receive additional holiday rights under their contracts.
The leave year
Under the WTR 1998, a leave year commences on the date set out in a relevant agreement, such as the contract of employment, a staff handbook, or a collective agreement. If the leave year is not specified in a relevant agreement, the WTR 1998 provides the following default position:
- For workers who were already employed on 1 October 1998, the leave year begins on 1 October each year.
- For workers who started after 1 October 1998, the leave year begins on the date their employment commenced and each anniversary of that date.
Under the default position, an employer would end up with workers who joined after 1 October 1998 having different leave years (depending on their start dates). This makes planning and implementing annual leave difficult. For this reason, employers normally provide for a common leave year in their employment contracts.
The first year of employment
If a worker starts work part-way through the employer's leave year, the WTR 1998 provides that:
- Leave entitlement for the remainder of the leave year in which employment starts should be calculated on a pro rata basis.
- During the first year of employment, the amount of the leave entitlement that the worker can take is governed by the "accrual" provisions. This means that leave accrues at the rate of 1/12 of a full year's entitlement at the beginning of each month.
- When calculating holiday hours accrued, if the amount of leave accrued includes a fraction of a day other than a half, this fraction should be rounded up to a half-day (if it is less than a half-day) and to a whole day (if it is more than a half-day).
The accrual provisions in the first year of employment are designed to control the taking of leave by new workers. There had been concern that a new worker would be entitled to take their entire leave entitlement during their first few weeks of employment. However, an employer can seek to delay an employee’s holiday until later in the year, whether the holiday entitlement has been accrued or not.
Related article: Holiday leave notice: how to manage holiday requests
After the first year of employment, the WTR 1998 are silent as to accrual of holiday entitlement and so the whole annual holiday entitlement becomes available at the start of each leave year. Many employers will, however, limit the amount of holiday that can be taken at once, by means of a provision in the worker's contract or in a staff handbook.
However, please note that if termination takes place in the first year of employment, the accrual provisions play no part in the calculation.
On termination of employment, a worker is entitled to pay in lieu of unused statutory holiday. The payment is calculated in accordance with either a relevant agreement (i.e. the worker’s contract, staff handbook or a collective agreement) or in the absence of such an agreement, the pay the worker would have received if they had taken a period of holiday is calculated in accordance with the following formula: (A x B) − C
- A is the period of statutory leave to which the worker would have been entitled for the whole of the leave year in which employment ends.
- B is the proportion of the worker's leave year which expired before the termination date, expressed as a fraction.
- C is the period of leave taken by the worker between the start of the leave year and the termination date.
Holidays and other employment rights
The interaction of holiday rights with other employment rights can lead to legal and practical problems. The main issues concern sick leave and family-related leave such as maternity, paternity, and adoption leave.
Sick leave and holiday rights
The law relating to holiday rights for employees on sick leave was in a state of uncertainty for many years. For example, there were unanswered questions about whether holiday entitlement under the WTR 1998 accrues during periods of sick leave, whether a worker on long-term sick leave (particularly where any sick pay entitlement has been exhausted) can take paid annual leave, and whether a worker whose employment terminates following an extended period of sickness absence is entitled to a payment in lieu of untaken holiday.
There was also the issue of whether a worker whose sick leave coincides with a planned period of annual leave has the right to defer their annual leave until a later date. These issues were to some extent resolved by the European Court of Justice (ECJ) in a series of important cases. The ECJ decided that:
- A worker on sick leave accrues annual leave under the Working Time Directive despite not working.
- It is for member states to decide whether a worker can take their annual leave during a period of sick leave.
- At the end of a leave year, a worker on sick leave who has been prevented from taking annual leave must be allowed to carry it over and take it at a later date.
- The right to be paid in lieu of accrued holiday on termination applies even if the worker has been on sick leave for the whole or part of the leave year.
Following this, the UK Courts ruled that:
- Statutory holiday entitlement under the WTR 1998 accrues during periods of sick leave.
- Payments in lieu of untaken statutory holiday on termination are unaffected by sickness absence.
- The WTR 1998 should be interpreted as allowing workers to take paid statutory holiday during periods of long-term sick leave.
In another important European case, it was also held that where a worker's pre-arranged holiday coincides with a period of sick leave, the worker has the option of taking the annual leave at another time, even if this falls after the end of the leave year. Therefore, this case established the principle that the carry-over of statutory holiday to the next leave year is permitted in certain circumstances.
Related article: Managing sickness and annual leave when they overlap
In many cases, an employer will have written policies or ad hoc arrangements that deal with the inter-relationship between holiday entitlement and periods of statutory family-related leave. However, if it does not, the basic position is as set out below.
Women on maternity leave continue to accrue their statutory paid annual leave entitlement under the WTR 1998 (and any contractual entitlement they may have in excess of this) during maternity leave.
According to the strict wording of the WTR 1998, women on maternity leave may lose some of their holiday entitlement if their leave extends into a new leave year, as the regulations do not permit statutory leave to be carried over into the next leave year.
The contract may also limit the carry-over of contractual holiday. However, for a woman to lose her statutory holiday entitlement in this way is unlawful under EU discrimination law. This suggests that employers have a duty (at least in relation to maternity leave) to allow the worker to take all her statutory annual leave at another time (either before she goes on maternity leave, or permitting her to carry it over to a subsequent leave year), which is what the majority of employers do.
- Shared parental leave: shared parental leave is treated in the same way as maternity leave. Employees are therefore entitled to accrue statutory and contractual leave in the normal way while on shared parental leave and the same considerations apply as those discussed under maternity leave.
- Adoption leave: this is treated in the same way as maternity leave for holiday purposes.
- Paternity leave: a worker on paternity leave is in the same position as a worker on maternity leave.
- Unpaid parental leave: a worker on unpaid parental leave does not have the right to benefit from contractual holiday arrangements, including the accrual of contractual holiday. However, they will continue to accrue statutory annual leave under the WTR 1998.
How to calculate holiday entitlement
Written by Matthew Ainscough
Matthew Ainscough is a Fellow of the Chartered Institute of Legal Executives (FCILEx), specialising in discrimination and employment litigation. He is a Senior Associate and Head of Employment Law at law firm Taylor & Emmet Solicitors. He writes about specialist employment law topics and issues.