All UK workers are entitled to 5.6 weeks (or a maximum of 28 days) of holiday over a full year, with pay equivalent to what the employee would earn in that period.
Planday’s accrued holiday feature keeps accurate track of the amount of paid leave each employee has earned, as well as how much should be paid out for each holiday day.
Holiday entitlement is calculated by:
A. Calculating the number of days accrued, then
B. Calculating the monetary value of the accrued days
Planday lets you choose between two methods for the calculation of accrued holiday pay
- 12-week-average (widely used, easy to explain, less accurate)
- Daily aggregate (more precise, more complex to explain)
While from the manager’s perspective, the effort is the same for either method, the 12-week-average is easier to grasp and explain to employees. The Daily aggregate method can be difficult to explain but is also more accurate, ensuring you don’t overpay for holiday.
Below, we’ll explain the benefits of each and give a detailed example of how they work, in order to help you choose the best method to calculate accrued holiday for your employees. Please note: we strongly advise you wait until the start of a new holiday year to change the calculation method for an employee.
Why we use 12.07%
Holiday is accrued each day an employee works. Consider a full-time employee who works the maximum of 46.4 weeks (232 days) in a given year. The ratio of holiday entitlement (5.6 weeks) to working weeks in a year is 12.07%. When we translate this into days, each day worked accrues 12.07% of a holiday day. See this broken in table 1 below.
Calculating the number of days accrued
For each day an employee works she accrues 12.07% of a day off, regardless of hours worked. We then calculate the value of those days using your chosen method.
METHOD 1: THE 12-WEEK AVERAGE
To calculate the monetary value of the days accrued, we use the average daily earnings based on the last 12 weeks worked.
Here’s an example:
In the last 12 weeks employee A worked 18 days, and has earned £1,095. Her average daily wage is £60.83, which is how much she will be paid for one day’s paid leave. Here’s how we arrived at this calculation.
Using the 12-week average to calculate accrued holiday is the simplest method both to understand and implement, although certain factors can impact its accuracy. An example could be fluctuating or inconsistent hours worked. For a breakdown of how this would impact the calculation of accrued holiday, see table 4 below.
METHOD 2: DAILY AGGREGATE
For every day worked, the Daily aggregate method adds to the accrued holiday collection ‘pot’ using the same rate used to calculate days accrued. So for every day worked, 12.07% of the value of the wage for that day is accrued.
Here’s an example: Employee A works 8 hours in a day for £10 an hour. For this day worked, she accrues 8 hours * £10 * 12.07% = £9.66 to be paid out for one day’s paid leave. Below, see how the further days she worked will impact her accrued holiday.
Below we use the same data from the above example to show how days worked and accrued holiday on those days contribute to two days of paid leave taken by Employee A.
Pitfalls in the 12-week-average model
If the overall rhythm of the employee’s shifts is subject to change (e.g. longer/shorter days, or wage changes from a raise or salary supplements) the 12-week-average model can be unfair. Here’s an example to highlight the effect of when an employee works more hours in a 12 week period than they worked in the former 12 week period.
Requesting vacation / deducting expected work days
A full-time employee requesting a week off should be paid the equivalent to a week’s pay.
If a part-time employee who consistently works 3 days a week were to take a week off, they would receive the equivalent to 3 days pay and use 3 days of holiday (these days are deducted from their vacation account). In this case, Planday will suggest the remaining 4 days off be unpaid, however the manager can choose to override this and deduct more or fewer days (this will also affect how much the employee is paid for the holiday).
Both scenarios with full and part-time employees are generally simple to calculate, however employees with irregular shifts can be more challenging. For employees with less consistent work-patterns, the Daily aggregate method is generally the better choice for calculating accrued holiday.