Does our way of calculating holiday entitlement in the first year of employment, based on whole months of service, meet the statutory requirements?

The Working Time Regulations 1998 (WTR) define entitlement to statutory annual leave. The right to holiday leave applies to "workers", not just to "employees", and includes agency workers and work experience trainees.

In holiday leave years starting April 2009 or later, a worker's statutory annual leave entitlement, including paid customary holidays, is 5.6 weeks. (In leave years starting in months that fall between April 2008 and March 2009, the statutory entitlement increases gradually from 4.8 weeks to 5.53 weeks.)

The following guidance applies to leave years starting April 2009 or later and relates specifically to a worker's statutory leave entitlement. Where workers are entitled to more than 5.6 weeks in a leave year, employers may use any method they wish to calculate holiday entitlement to the extra contractual holiday. In practice, employers generally use the same calculation method for all holiday leave, whether it is statutory or contractual.

Regulations 13 and 13A of the WTR explain how entitlement is calculated for new employees who start part way through a leave year. Entitlement involves calculating the proportion of the leave year between the day the worker starts and the end of the leave year and then applying that proportion to the 5.6 weeks' annual entitlement.

Annual entitlement

A worker's annual entitlement is commonly expressed in days, depending on the number of days worked in a week. If five days are worked each week, the annual entitlement is 28 days (5.6 × 5). For three days, the entitlement is 16.8 days (5.6 × 3), and so on. (Note that the maximum number of statutory days entitlement for a 6-day worker is 28 days.)

Some employers, however, calculate annual entitlement in hours, to suit workers whose working hours vary day by day. If 30 hours are worked each week, the annual entitlement is 168 hours (5.6 × 30). If weekly hours are 18, the entitlement is 100.8 hours (5.6 × 18), and so on.

Holiday year

Most employers have a defined holiday year, e.g. 1 April to 31 March. If it is not defined contractually, each worker's holiday year starts from the date the employment began, and from the anniversary of that date in subsequent years. For example, the holiday year for a worker who started on 9 October 2008 would be the year from that date, and each successive holiday year would also start on 9 October. This worker is entitled to the full 5.6 weeks statutory paid leave in the year to 8 October 2009.

Calculating entitlement

If the holiday year is defined in the contract, the entitlement for a worker who starts part way through the holiday year is based on the period of time between the start date and the end of the holiday year, and the proportion that that period is to the full holiday year. The Regulations do not state how this proportion should be calculated. Many employers determine the proportion by taking the number of whole calendar months remaining in the holiday year. It could more accurately be calculated by using weeks or days.

If whole calendar months are used, the calculation is:

annual entitlement in days × the number of calendar months remaining in the holiday year ÷ 12.

If days are used, the calculation is:

annual entitlement in days × the number of days remaining in the holiday year ÷ 365, or 366 if appropriate.

The result of the calculation is left with any decimal fractions, not rounded up or down.

Example 1: The employer's holiday year runs from 1 April to 31 March and a 5-day worker starts on 5 October 2009:

Using whole months for the calculation (i.e. the 5 months from November to March), the worker would have entitlement to 11.67 days holiday (i.e. 28 days × 5 ÷ 12 = 11.67 days)

Using days for the calculation (i.e. the 178 days from 9 October to 31 March), the same worker would have entitlement to 13.65 days (i.e. 28 days × 178 ÷ 365 = 13.65 days)

Although the calculations give different results, neither is incorrect as the Regulations do not define how to calculate the "proportion". However, in some circumstances, the monthly calculation can deprive an employee of entitlement when there is clearly a "proportion" of the year to consider.

Example 2: The employer's holiday year runs from 1 April to 31 March and a 5-day worker starts on 8 March 2010:

Using whole months for the calculation (March is not counted as a whole month), the worker would have no entitlement to holiday in the remaining part of the holiday year (i.e. 28 days × 0 ÷ 12)

Using days for the calculation (i.e. the 24 days from 8 to 31 March, the same worker would have entitlement to 1.84 days (i.e. 28 days × 24 ÷ 365 = 1.84 days.

Employers who give far more than 28 paid days of holiday each year, including paid customary holidays, may feel that holiday entitlement for new employees will easily exceed the statutory entitlement. This is not necessarily the case. Taking the situation using whole months in example 2, it doesn't matter how many days contractual entitlement a worker has, the entitlement in the remaining part of the holiday year is still nil.

Consequently, employers may properly use whole months of employment to determine holiday entitlement in the first year of employment, but care must be taken when the calculation results in no holiday entitlement but there is clearly a proportion of the holiday year remaining for which there should be some entitlement. Regulation 35 does not allow employers to contract out of any of the WTR rights unless that is specifically permitted by the WTR, i.e. under the provisions of a collective or workforce agreement. There is no such provision with regard to sections 13 and 13A of the WTR, so not to provide some paid leave in the situation described in Example 2 could be found by a tribunal to be in breach of the Regulations.

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