PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.
How should annual leave entitlement be calculated for a “casual” worker with irregular hours?
The fact that the Working Time Regulations (WTR) 1998 entitles all workers to 5.6 weeks’ paid holiday complicates matters when dealing with workers who work irregular hours and so do not have “normal working week” upon which holiday entitlement / pay can easily be calculated.
Before approaching the calculation it is best to note that it will be necessary to perform separate calculations for annual leave entitlement, and the pay that workers should receive during that holiday entitlement.
Unfortunately, the WTR 1998 does not provide a set calculation for working this out and currently there is no relevant case law to shed light on the issue. Therefore, although this note offers suggestions – they should not be taken as definitive until the law is clarified by either parliament or the courts.
We believe that it is best to calculate holiday entitlement for casual employees on a rolling basis.
Workers are entitled to 5.6 weeks’ paid holiday each year, under regulations 13 and 13A of the Working Time Regulations 1998 (SI 1998/1833).
Therefore, workers with the statutory minimum holiday entitlement will spend 46.4 weeks per year at work.
The 5.6 week holiday entitlement equates to 12.07% of 46.4 weeks, which is the 52-week year minus the 5.6 weeks’ holiday entitlement.
Therefore, if an employee’s hours are known then they will be entitled to take 12.07% of that figure as paid annual leave.
Using this method, holiday entitlement equates to just over seven minutes for each hour worked. For example, if you had worked 10 hours, you would be entitled to 72.6 minutes’ paid holiday:
12.07% x 10 hours = 1.21 hours = 72.6 minutes
This example is cited in the Acas guidance on holiday pay and there is also an interactive calculator on the government website which works out statutory holiday entitlement using this formula (see https://www.gov.uk/calculate-your-holiday-entitlement).
However, please note that while the 12.07% rate may be useful to calculate holiday entitlement, it should not be used to calculate holiday pay. With regard to pay the correct approach is to calculate the holiday pay using the rules set out at section 224 of the Employment Rights Act (ERA) 1996.
This says that if a worker does not have “normal” working hours, a week’s pay is taken to be the worker’s average weekly pay in the 12 weeks before the first day of the period of leave,
It should be noted that this might mean that the holiday pay could be more (or less) than 12.07% of the employee’s annual earnings.
For example, if an employee works (at the current minimum wage of £7.83) for 1000 hours over the course of a calendar year they would accrued an entitlement of 120.7 hours or 7242 minutes of annual leave for that year. Their average weekly wage for the year would be £150.58.
However, if the employee worked 480 hours during the 12 weeks running up to the first day of a 2 week holiday then the holiday pay would need to be based on the average wages received during those 12 weeks (£313.20 per week).