Calculating holiday for flexible workers

The statutory holiday entitlement for workers is 5.6 weeks. For a regular, full-time employee working 5 days a week, this means 28 days holiday (because 5.6 x 5 = 28). You’re allowed to include public holidays in this entitlement; Easter, Christmas, spring and summer bank holidays, etc.. There are 8 public holidays, so that means 20 days (4 weeks) plus public holidays.

Calculating annual leave for part-time workers works the same way. Just take the number of days (or hours) they work per week, and multiply that by 5.6. For example, if a part-time staff member works 2.5 days per week, they have 14 days holiday allowance per year (because 2.5 x 5.6 = 14).

Well, that’s easy enough. But how do you calculate holiday for flexible workers?

A Deliveroo cyclist in London

People who work flexible hours, for example “freelancers” or those on zero hours contracts, don’t always work the same hours every week. Therefore, you can’t just multiply a week’s hours by 5.6 to figure out their leave entitlement.

To calculate holiday for flexible workers correctly, you need to approach it in two steps:

  1. Calculating the amount of holiday time they are entitled to
  2. Calculating the amount of holiday pay they get for that time

The holiday time and holiday pay are two different things! Let’s look at each of these…

Calculating holiday time

The easiest way you can calculate holiday time is with the accrual method. This means that, for every hour worked, the worker accrues a certain amount of holiday time entitlement.

Remember we said that the statutory entitlement is 5.6 weeks? Well, there are 52 weeks in a year, and 52 – 5.6 = 46.4. Therefore, there are 46.4 “working weeks” in a year. Now, 5.6 is 12.07% of 46.4, so we can use that to work out the accrual for flexible workers. Take the amount of hours they have worked, multiply that by 12.07% and that’s their holiday time entitlement.

For example, if someone works 20 hours in one week and 16 hours the next week, then they earn 4.34 hours of leave:

  • 20 x 12.07% = 2.41
  • 16 x 12.07% = 1.93
  • 2.414 + 1.931 = 4.34 hours

All you need to do is keep track of the hours worked and use 12.07% to figure out how much holiday time has accrued.

Calculating holiday pay

A number of employers have been using the same 12.07% method to work out holiday pay. They multiply the accrued holiday time (as above) by their hourly rate. Or they keep track of their pay over the same period and take 12.07% of that.

This may seem intuitive but is not correct, and has been found unlawful in the case of The Harpur Trust v Brazel.

The problem is that, for workers with irregular hours, the statutory calculation for holiday pay must be based on the average pay over 52 weeks. It’s possible that using the 52 week average can give you a different result than the 12.07% method, especially if the worker’s hours have varied significantly over that period.

For example, imagine that 6 months ago, they did a lot of hours in most weeks but now, they’re only doing a few. If you based their holiday pay on their hours over the last month or quarter, this would be less than the 52 week average. This can easily happen when we don’t look back across calendar year boundaries. We’re accustomed to thinking of the “holiday year” being from January to December, and can be fooled into only calculating pay based on the current year. The 52 week average will, of course, span back into the previous year.

So, you need to keep track of the flexible worker’s average pay over a rolling 52-week period, and use that figure for the holiday pay rate.

Self-employed workers

But wait – what if my workers are self-employed? They don’t get any annual leave entitlement, right?

That depends if you are using self-employed workers correctly. Just declaring that someone has “self-employed” status in their contract doesn’t make it true. Being self-employed as far as HMRC are concerned, i.e. responsible for their own Income Tax and National Insurance, does not make them “self-employed” as far as employment rights are concerned. If your worker qualifies as a “limb (b) worker” under section 230 of the Employment Rights Act, then they are entitled to annual leave and a workplace pension.

Summary

The key point to remember is that holiday time and pay are different calculations. Use the 12.07% approach for calculating holiday time entitlements, and the 52-week average pay for holiday pay entitlement.

Note that after the Harpur v Brazel case, a number of people have been claiming that the 12.07% approach is unlawful for any irregular hours holiday calculation. This is only true for the holiday pay calculation! It’s perfectly fine to use it for working out the accrued leave.