The Laws Surrounding Holiday Pay

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The weather is warming up, and it will soon be the time of year that employees start taking holidays. Some employers, especially those running smaller and newer businesses, are unsure about the specifics of the law regarding paid holiday leave.
The matter of holiday pay is also something that should be considered by those taking on employees for the first time, as it will form part of the financial impact that taking on staff has on the business. If you are unsure how well your business will bear the cost, speak to your accountant.
Holiday Rights
Full-time employees have the legal right to take paid holiday for at least 5.6 weeks, up to a total of 28 days, each leave year. The entitlement of part time workers is calculated pro rata based on this statutory minimum. Bank holidays and other public holidays such as Christmas Day are included in this calculation. The exact dates of the leave year may be formally agreed, for example in the employment contract, or if no such agreement exists then it will begin on their first day of employment and on each anniversary of that date.
This figure is a statutory minimum, rather than something to be adhered to precisely. Should an employer choose, they are free to offer employees more than this minimum level of paid holiday. Any holiday allowance within the statutory minimum must be used within the leave year or else lost, but employers can allow any additional holiday rights to be carried over to the next year.
The right of employees to take holiday begins from their first day of employment, but holiday may be accrued by new employees as they work. The accrual rate is one twelfth of their entitlement on the first day of each month for their first year of employment, rounded to the nearest half day.
Rate of Holiday Pay
If the employee has regular working hours, then holiday is paid at the rate of one week’s pay according to these regular hours for each week of holiday they take. Overtime is not normally included in this, though it may be if guaranteed in the contract of employment.
If an employee wants to take a week’s leave but has variable working hours from week-to-week, then their weekly rate of holiday pay will be calculated as an average of the money they received over the previous twelve working weeks. Any weeks in which they received no pay are not included – rather the last twelve weeks during which the employee actually carried out paid work are used.
When an employee leaves your employment and has remaining holiday entitlement, they have the right to be paid in lieu of the holiday they have not taken. The rate of pay for this is calculated in the same way as it would be if they were taking their remaining holiday entitlement.

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