How is a worker's statutory holiday entitlement calculated in the first year of employment, and how can an employer confirm that contractual entitlement satisfies the statutory entitlement?

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.

A worker's statutory annual leave entitlement is four weeks. Regulation 13 of the WTR explains how entitlement is calculated for new employees who start part way through the holiday year. Entitlement involves a calculation using

• the worker's annual holiday entitlement expressed in days, and
• the proportion of the leave year between the day the worker starts and the end of the holiday year.

Annual entitlement
A worker's annual entitlement in days depends on the number of days worked in a week. If five days are worked each week, the annual entitlement is 20 days. For three days, the entitlement is 12 days, and so on. Some employers calculate annual entitlement in hours, to suit workers whose working hours vary day by day.

Holiday year
Most employers have a defined holiday year, e.g. 1 April to 31 March. If it is not contractually defined, 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 11 October 2004 would be the year from that date, and each successive holiday year would also start on 11 October. This worker is entitled to the full four weeks statutory entitlement in the year to 10 October 2005.

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 is rounded up to the next whole number of days.

Example 1

The employer's holiday year runs from 1 April to 31 March and a 5-day worker starts on 11 October 2004:

Using months for the calculation, the worker would have entitlement to 9 days holiday (i.e. 20 days × 5 months ÷ 12 months = 8.33, rounded up)

Using days for the calculation, the same worker would have entitlement to 10 days (i.e. 20 days × 172 days ÷ 365 days = 9.42, rounded up)

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 7 March 2005:

Using months for the calculation, the worker would have no entitlement to holiday in the remaining part of the holiday year (i.e. 20 days × 0 months ÷ 12 months)

Using days for the calculation, the same worker would have entitlement to 2 days (i.e. 20 days × 25 days ÷ 365 days = 1.37, rounded up)

Employers who give far more than 20 paid days of holiday each year, including paid bank holidays, may feel that holiday entitlement for new employees will easily exceed the statutory entitlement. This is not necessarily the case. Taking the situation 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 not to deny workers their statutory entitlement when a proportion of the holiday year remains that would provide some entitlement.

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