Calculating Holiday Pay

It is a legal obligation, under the Working Time Regulations, for employers to either:

  1. itemise and pay holiday pay in payslips (in the case of hourly paid staff), or
  2. specify the number of paid holidays in the contract of employment (for employees).

Standard employment contracts simply specify the number of days holiday an employee is entitled to. However, when staff are paid by the hour, or paid from time-sheets, it is more usual to pay them an additional amount, termed “holiday pay”, which must be itemised.

Sometimes employers fail to do this, particularly if staff are paid through ad-hoc local arrangements. If your employer fails to itemise holiday pay, employees can challenge this. Below we discuss how holiday pay should be calculated in the case of hourly paid staff and employees.

The law says that the employer should either work out pro-rata annual leave / holiday pay entitlement by either:

  1. calculating how many hours’ holiday a staff member is entitled to, and paying for them, or
  2. factoring in a percentage holiday pay allowance (holiday uplift factor) to make up the difference.

Typically for employees, the rule is then to round up the total hours to the nearest half day.

How to calculate holiday pay

1. What employers do

For hourly-paid staff, employers almost always publish hourly rates without accounting for holiday pay, calculated by the following formula which does not pay for holidays, only hours worked:

  • Exclusive hourly paid rate = annual salary / HPW × WPY,

where HPW = hours per week, WPY = weeks per year (52.14), and the annual salary is derived from the pay scale.

2. Identify full time entitlements

But this does not cover payment for annual leave entitlement, i.e. “holiday pay”. What is missing, and how can we identify this discrepancy?

Consider a full time employee. How many hours does this employee have to work to fulfil their contract and claim their leave?

To work out the number of annual hours a full time employee works, you may need to do a bit of simple maths.

  • Potential working days = 365 × 5/7 = WPY × 5.
  • Leave daysclosure days – annual leave days*
  • Actual working days = potential working days – leave days.
  • Annual hours = (actual working days / 5) × HPW.

*Note: Under the Part Time Workers Regulations 2000, the employer should pay pro-rata (in proportion), and this includes paying for annual leave days and other closure days. Note that bank holidays and institutional closure days must come under the pro-rata calculation (cf. two part-time employees, one working on Mondays and another working on Tuesdays: the one working on Mondays has more bank holidays but loses annual leave to compensate).

You can also calculate the inclusive annual holiday pay rate (i.e. inclusive of a pro-rata payment for holidays), as follows:

  • Inclusive hourly paid rate = annual salary / annual hours of a full time employee.

3. Calculate holiday uplift factor

Probably the most useful figure for activists is the holiday uplift factor (HUF), which can be calculated from the formulae above as either:

  1. hours: Holiday uplift factor HUF = leave hours / annual hours
  2. days: HUF = leave days / actual working days

Example:

  • University College London has a standard full-time contract with 36.5 hours per week, 14 closure days and 27 days’ annual leave.
  • HPW = 36.5, WPY = 52.14
  • Annual hours, including leave = (365×5/7)/5 × HPW = 1,903.
  • Annual hours, excluding leave = (365×5/7 – 14 – 27)/5 × HPW = 1,604.
  • Leave hours = 1,903 – 1604 = 299.
  • HUF = 299 / 1,604 = 0.185 (i.e. an increase of 18.5%).

Quick calculation, avoiding hours:

  • Leave days  = 14+27 = 41
  • Potential working days = 365×5/7 = 260.7143.
  • HUF = 41 / (260.7143 – 41) ≅ 0.185.

Similarly, with 35 hrs per week and 30 days holiday, HUF = 1.20;  for 35 hrs, 25 days, HUF = 1.1744, etc.

The correct comparator for HPLs would be main grade lecturers (MGLs) if MGLs had different annual holiday entitlements to other groups of staff.


NOTE: It is a legal requirement to pay holiday pay under the Working Time Regulations 1998. A holiday pay amount must be calculated, itemised and paid by the employer. 

If this is not done (or was calculated in error), then the employee can perform the calculation themselves using the method above and claim the difference in lost earnings. So-called “wages claims” can go back as far as six years, and amounts owed are often substantial.

Consequently, great care should be taken in preparing a case. To pursue this, members should seek advice from their union rep. Non-members reading this should join the union immediately!

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