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Variable hours employees holiday guide

Variable hours holiday pay

What is a variable hours employee?

‘Variable hours’ employees do not have set hours and can work irregular hours during a working week. They have no fixed working pattern (i.e. they are not shift workers who work set hours).

A variable hour employee is usually an hourly-paid employee who:

  1. Has no set hours of work at all, though employers expect them to be available to work as and when they require them to (i.e. a “zero hours'” employee); or
  2. Has a nominal number of contracted hours (to allow the employer to maintain flexibility), but is also required to work in excess of those hours; or
  3. Is responsible for determining their own hours of work, which will be dictated by their workload.

Variable hours employees may be available for work at any time during the week, if required, or at specific times only during the week.

The Working Time Regulations 1998

All workers qualify for 5.6 weeks paid annual leave (“holiday”) under the Working Time Regulations 1998 (“WTR”). This is true regardless of how long they have been in the job. This is called the statutory minimum holiday entitlement, and amounts to 28 days per year (inclusive of public holidays) for a full-time employee.

Note that the statutory entitlement caps at 28 days. So, an employee working a six-day week still only gets 28 days rather than 33.6 days (i.e. 6 x 5.6 weeks) holiday. The statutory minimum entitlement is pro-rata for part-time workers.

Statutory and contractual entitlement

Some employers choose to give more generous holiday entitlement than the statutory minimum. This is known as contractual holiday entitlement.

There are specific rules in the WTR relating to statutory holiday entitlement. Any specific rules in relation to contractual holiday entitlement are usually in a contract of employment, or other written agreement between the employer and employee.

It is important to remember to distinguish between statutory and contractual entitlement. For example, the WTR do not allow statutory holiday entitlement to be carried over into the next holiday year. This is true except in cases where the employee is not able to take the holiday due to being on another type of statutory leave (e.g. maternity or paternity leave). Nor do they allow for payment in lieu of holiday except on termination of employment. However, employers and employees are free to agree that employees can take any contractual holiday in excess of the statutory minimum the next holiday year. Or a payment in lieu to be made instead.

In other words, an employee must take the entire statutory minimum holiday entitlement in that holiday year.

Discrimination against variable hours employees

Unless they regularly work hours equivalent to full-time hours, variable hours employees are part-time workers for employment law purposes. They are therefore covered by legislation protecting part-time workers. You need to be mindful of this when dealing with their entitlements.

This note is written on the basis that a variable hour employee will have statutory only holiday entitlement. However, if you have full-time employees doing similar work to employees on a variable hours contract, you should always pro-rate the full-time entitlement for employees with variable working hours. You should not single out variable hours employees and limit their entitlement to statutory only on the basis that they are working irregular hours. This may give rise to discrimination claims under employment legislation.

Where you have full-time employees doing very different types of work to your variable hours employees, it may be possible to justify giving different entitlements. For example, a full-time manager could be entitled to 30 days plus public holidays. On the other hand, a manual labourer with irregular hours could have the statutory minimum of 28 days inclusive of public holidays.

Weeks, days or hours?

The statutory entitlement to holidays is expressed in weeks (5.6 weeks) and days (28 days maximum). However, the only practical way of calculating entitlement for variable hours employees is to work in hours.

Calculating holiday accrual

Calculating holiday accrual

It is important to remember that there is a difference between an employee’s entitlements to holiday leave and to holiday pay. This is particularly relevant when dealing with a variable hours employee.

Full-time and part-time holiday entitlement

Calculating annual leave entitlement for full-time employees and part-time employees working fixed hours is easy. Full-time workers will be entitled to 28 days holiday. Part-time workers are entitled to a pro-rated amount of holiday; this depends on what percentage of the full-time working week they work. So, an employee who works three full days a week in an organisation where the full-time working week is five days will be entitled to 17 days. This is 60 per cent of 28, which rounds up to the nearest half day.

Where there is additional contractual entitlement, part-time entitlement should be calculated in the same way. Use the contractual full-time entitlement as the starting point. Sometimes there are issues with apportioning bank/public holidays, but that is beyond the scope of this note.

Unfortunately, things are not so straightforward when it comes to variable hours employees. This is because it is not known in advance how long a variable hours worker will be engaged for or what hours they will work.

Calculating holiday entitlement for hourly paid staff

Where the full-time entitlement is to statutory minimum only, variable hours employees accrue holiday at the rate of 12.07 per cent of hours worked. You can calculate this as follows: 5.6 weeks divided by 46.4 weeks (i.e. 52 weeks less 5.6 weeks (the time the employee is actually on holiday)). If there is contractual holiday entitlement in addition, the percentage accrued per hour will increase accordingly.

For example, say an employee with variable work hours has worked 7 hours. The employee will have accrued 0.84 of an hour’s holiday.

How much holiday can variable hours employees book?

Variable hours employees with more than one year’s service are entitled to request to take their holiday at any time. This is irrespective of whether or not they have accrued it at that point.

An employer is entitled, at any time, to refuse a holiday request on operational grounds. However, there are rules which govern an employer’s ability to refuse a holiday request on the basis that the holiday has not been accrued.

In other words, after the first year, an employee could ask for one week’s holiday right at the beginning of the holiday year. You may use operational reasons for saying “no” to this holiday. However, you would not be allowed to use the fact that it has not been accrued as the reason.

…during the first year

We know that variable working hours employees actually accrue holiday at 12.07% of each hour worked.

However, does this mean that an employee has to actually accrue holiday before they are allowed to take it? An employee for instance may request a two week holiday in the first month of the holiday year. How does this work, in relation to how much holiday has actually been accrued?

Types of holiday accrual

There are actually two types of holiday accrual:

  • a “real” accrual which is the actual amount of holiday the employee has accrued; and
  • under the statutory regime, employees on a variable hours contract are deemed to accrue a “notional” holiday amount on the first day of each calendar month of employment. This is at the rate of 1/12th of their annual statutory entitlement.

Take a new variable hours employee who has been employed for one month. Even if they have not actually worked, they are entitled to request 1/12th of their annual entitlement. An employer cannot refuse this request on the grounds that the employee has not accrued it. However, they could refuse the request on operational grounds.

Calculating notional holiday accrual

Practically, we have the following two suggestions for calculating the notional accrual:

  1. You could allow the employee to accrue 1/12th of 5.6 multiplied by a full-time working week. For example, for a 37 hour week, this would be 17.5 hours (37 hours x 5.6 weeks/12 months rounded up to the nearest half-day). Many employers will not wish to do this unless the variable hours employee is likely to work full time; or
  2. You could estimate the actual average weekly hours the employee is likely to work and use this to calculate entitlement. For example, you could estimate that the employee would work an average of 20 hours. Accrued entitlement would therefore be 9.5 hours (20 hours x 5.6 weeks/12 months rounded up to the nearest half-day).

If an employee starts part-way through a month, they would not legally accrue any entitlement until the first day of the next calendar month.

Adjusting annual leave accrual

As time goes by, you can base the calculation on actual hours worked using figures from previous months/years. You will need to carry-out ‘adjustment’ exercises periodically (perhaps quarterly). This is to make sure that the correct entitlement has been given. Doing so will also avoid a situation where the employee has taken more holiday that they are likely to accrue by the end of the holiday year. Both situations could lead to a breach of the Working Time Directive (see “Time off” below).

If you manage your employees well, you should never be in a position where staff have a negative or positive balance at the end of a holiday year. However, if you do, there are various options:

  1. If the employee has not taken all of their holiday, you should ensure they do so immediately;
  2. If they have taken more holiday than they have accrued, you could deduct the relevant sum from their next pay. Make sure you have the contractual entitlement to do this i.e. a deductions clause in the contract; or
  3. Carry a negative balance forward into the next year (the myhrtoolkit system does this automatically for you).

Related article: Encouraging employees to take annual leave

In reality, many employers will simply use their common sense to estimate approximately how many hours the employee is likely to accrue month by month, and will allow them to take holiday on that basis.

…after the first year

Beyond the first year, employees can take their whole annual entitlement. This is true irrespective of whether or not they have accrued it. Theoretically, therefore, an employee could ask to take their full 5.6 weeks entitlement at the beginning of the holiday year. Given that you will not know what that entitlement would equate to in hours, you might (understandably) be reluctant to agree to this.

A suggestion for working out a likely full year entitlement would be to use that employee’s previous year’s entitlement. Or you could take an average of all variable work hours employees’ entitlements. You would need to carry-out regular ‘adjustment’ exercises to make sure you are giving the correct entitlement.

Holiday accrual cap

If an employee accrues holiday as a percentage of the hours they work, what happens if an employee works more hours than the standard working week? If an employee did this every week, they would end the year with more than the statutory minimum holiday.

As an employer, you may allow this. Many employers, however, will wish to cap the maximum holiday accrual. You can do this on a daily, weekly, monthly, or quarterly basis. Obviously, the longer the reference period, the fairer the accrual cap is.

Time off for variable hours employees

Given that there will be periods where variable hours employees do not work, there is also the practical problem of how they actually take holiday. The WTR make clear that employees should actually have time off work. Myhrtoolkit is of course a useful way of ensuring that employees take the holiday they should.

What is a day’s holiday?

Say a variable hours employee wishes to be on holiday for a whole day or week. How many hours’ holiday do they need to book?

This will depend on the normal working day, which might be 7.5 or 8 hours for instance. On the other hand, if the variable hours employee is only available to work in the mornings for instance, you may agree that the employee needs to book 4 hours for each day.

Calculating holiday pay for hourly paid staff

Most employees get holiday pay at their basic daily or hourly rate. However, where variable hours employees are paid different rates for different hours worked or for different types of work, you will need to pay holiday pay equivalent to the employee’s average pay in the previous 12 weeks. You should ignore weeks where the employee did not work and use earlier weeks instead.

Where you pay a variable hours employee for all the hours they work at the same rate, there is no need to calculate an average.

Rolled up holiday pay for hourly paid staff

Rolled up holiday pay is the practice of including a percentage supplement to the basic hourly rate to cover holiday pay.

In 2006, the European Court of Justice ruled that the practice of rolling up holiday pay was unlawful. This is on the basis that employees should be paid for holiday at the time it is taken. It also ruled that any sums paid to employees in respect of rolled up holiday, which were transparent payments clearly separated out as holiday pay, could be offset against any claim for holiday pay. However, there was an indication that employers should re-negotiate contracts to stop the use of rolled up holiday pay.

UK Government guidance now says that employers cannot use rolled up holiday pay and that where a current contract still includes rolled up pay, it needs to be renegotiated.

If you have used a rolled up holiday pay system for some time, it may be that you would be able to offset payments made against compensation for any claim raised. However, we would strongly suggest you take legal / HR advice on this given the above position.

The statutory holiday request procedure

The WTR set out the notice requirements that apply when an employee wishes to take holiday, or when an employer wishes to compel an employee to take holiday or refuse a request. The rules recognise that it is important for employers to be able to manage their business effectively. For example, with the use of annual shutdowns, or to ensure adequate cover at all times. However, there is also an expectation that employers exercise the ability to ‘control’ holidays reasonably to maintain employee trust.

Employees must give notice of at least twice the number of days or part-days that they are proposing to take as leave. For example, if the employee proposes to take five days holiday, they must give at least ten calendar days’ notice. An employer wishing to compel an employee to take leave on specific dates must comply with the same notice requirement.

Employer counter-notice for holiday requests

An employer refusing a holiday request must issue a ‘counter-notice.’ They must issue the counter-notice at least the same number of days before the start date as the total number of days the employer wishes to prohibit holiday. So where an employee wants to take five days holiday, they would need to request it five days in advance. If the employer wanted to refuse all five days, they must issue a counter-notice at least five days before the start of the holiday.

In the first year of employment, employers can issue a counter-notice on the basis that the employee has not accrued enough holiday, or due to business reasons. After the first year of employment, the employee cannot issue a counter-notice unless due to business reasons.

Unlike the right to statutory holiday itself, the above notice requirements can vary by contract of employment (or other legally enforceable written agreement between employer and employee). In most cases, employers will ask that employees give a longer notice period.

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