Calculating accrued annual leave
Knowing how much annual leave your employees have accrued is important for when they request time off, as well as for when they leave the company. However, calculating staff holiday accrual can be time-consuming, and tedious, particularly if you don’t have the proper systems in place.
This post looks at how holiday accrual works and how to calculate it your employees.
What is accrued annual leave?
Accrued annual leave is simply the amount of holiday an employee has built up, or earned, over the course of a year. When an employee starts at a company, or at the beginning of a year, they may have an annual leave allowance of 30 days, for instance, but, technically, they have to accrue their holiday entitlement over the course of the year. Employees typically accrue one twelfth of their annual entitlement each month.
This is what prevents a new employee from starting a new job and immediately requesting a three-week holiday: they won’t have accrued enough holiday to take that much time off (unless they arranged it with management during their recruitment process). For new starters or part-time employees, you can use a pro rata holiday calculator to accurately calculate holiday entitlement based on their start date or working hours. This helps ensure you calculate holiday allowances fairly and in line with company policy.
Statutory minimum holiday entitlement
Before we talk about accruing annual leave, let’s start with a quick refresher on the statutory holiday entitlement. In the UK, companies are legally obliged to offer their staff 5.6 weeks of annual leave. For a full time worker on a five day week, this is equivalent to 28 days holiday per year, which is the minimum paid holiday required by law.
Annual holiday entitlement is calculated based on the number of days an employee works per week (employee works). Part time employees receive a pro rata amount of days holiday, and their entitlement should be rounded up to the nearest half day or half day as required by UK law. UK employees’ statutory entitlement may include or exclude bank holidays, and employers can choose how many bank holidays to include as part of the mandatory entitlement or offer them in addition.
Annual leave calculation also applies to part year workers, zero hours workers, and those who work irregular hours. For these employees, leave is accrued based on average hours worked and their specific working patterns. Employees who work irregular hours or are zero hours workers accrue holiday in the same way as full- and part-time workers, at a rate of 5.6 weeks a year. For variable hours, the statutory accrual rate is 12.07% of hours worked, calculated as Total Hours Worked in Pay Period multiplied by 0.1207. The government provides an online calculator to help calculate annual leave entitlement and leave accruals.
Total annual leave is calculated by adding statutory and contractual days holiday. When calculating pro rata entitlement, you can use annual leave calculation and calculate annual leave entitlement tools to ensure accuracy. Working patterns and average hours are used to determine leave for employees with irregular schedules.
In addition, an employee’s annual leave year entitlement isn’t affected by other types of leave, such as maternity leave. What’s more, employees still accrue holiday during while on maternity leave (as well as paternity and adoption leave).
How do employees accrue annual leave?
Employees start accruing 1/12 of their annual leave allowance each month, from their first day on the job. For example, if your company’s holiday allowance is 30 days, after 6 months, a full-time employee will have accrued 15 days.
Another important factor in calculating accrued holiday is the holiday year start date, which determines how your company’s holiday year works. Some businesses keep it simple and make their leave year run from January – December, while others base it on the financial year so that it runs from April – March. The holiday year start date is especially important when calculating pro-rata leave for employees who start or leave part-way through the holiday year. Automated systems and HR software can handle these pro-rata calculations and provide a dashboard view of each employee’s holiday allowances, including any adjustments. An annual leave entitlement calculator can also help track accruals, though some calculators may not account for carried-over leave from previous years.
Calculating pro rata holiday entitlement for an employee who starts part-way through the year
Calculating accrued annual leave becomes more complicated when the employee starts partway through the year.
To accurately calculate holiday entitlement for a new starter, you need to know your holiday year start date. For example, if your leave year runs from January 1 – December 31, and a new employee starts in April, you would use a pro rata holiday calculator to determine their entitlement based on the period from April to the end of December. This is 9/12 of a full year’s holiday allowance. If they’re a full-time member of staff entitled to 28 days paid leave a year, the employee who starts in April will be entitled to 9/12 of 28, which is 21 days.
Automated systems can handle these pro-rata calculations efficiently, ensuring accuracy and saving time when you calculate holiday entitlement for employees who start or leave part-way through the holiday year.
What if an employee leaves?
If an employee leaves your company, you need to calculate holiday entitlement based on their leaving date to determine how much holiday they’ve accrued and taken for their final month’s salary. The leaving date is crucial for accurately calculating accrued leave. The notice period also affects holiday pay calculations, as any outstanding holiday entitlement should be included in the final pay or Payment in Lieu of Notice (PILON) if applicable. If they’ve taken less holiday than they’ve accrued, they still have some of their allowance left and need to be compensated for it. If they’ve taken more annual leave than they’ve accrued, the difference should be deducted from their final salary payment. Employees can request leave and managers can approve it using HR tools or an employee portal, making it easier to track and calculate outstanding leave at the point of leaving.
Unused holiday and carry over
Unused holiday and carry over are key aspects of managing annual leave entitlement in the UK, and understanding the rules can help both employers and employees make the most of their holiday allowance. Under UK employment law, every employee is entitled to a statutory minimum of 5.6 weeks’ paid annual leave, which can include bank holidays. However, not everyone manages to take all their annual leave within the holiday year, leading to questions about what happens to unused holiday.
In most cases, whether unused holiday can be carried over into the next leave year is at the employer’s discretion, and should be clearly outlined in the employment contract or company absence policy. However, there are important exceptions. For example, if an employee is unable to take their annual leave due to statutory leave—such as maternity, paternity, or adoption leave—they are allowed to carry over their full annual leave entitlement. Similarly, if an employee is prevented from taking holiday due to long-term sickness, they may be able to carry over up to 20 days of statutory leave into the next leave year.
Calculating unused holiday and carry over can be straightforward with the right tools. Many employers use a holiday entitlement calculator or annual leave calculator to determine exactly how much leave an employee has accrued and how much can be carried over. For part-time workers, pro rata holiday entitlement is based on the number of days or hours worked per week. For example, an employee working three days a week with a 5.6 weeks’ entitlement would have an annual leave allowance of 16.8 days. If they have unused holiday at the end of the leave year, the pro rata amount eligible for carry over can be calculated based on their working pattern and the company’s policy.
For employees with irregular hours or zero hours contracts, calculating unused holiday can be more complex. Rolled up holiday pay is sometimes used for these workers, where holiday pay is included in their hourly rate. In these cases, employers must ensure that the method used is compliant with current UK employment law and that employees receive their full statutory entitlement. The calculation often involves averaging the hours worked over a set period and applying the statutory holiday entitlement percentage.
Bank holidays are another important consideration. Employers can choose to include UK bank holidays as part of the annual leave entitlement or offer them as additional paid public holidays. The number of bank holidays in the UK typically stands at eight per year, but entitlement for part-time or irregular hours workers should be calculated on a pro rata basis. A holiday calculator can help determine the correct bank holiday entitlement for each employee, ensuring everyone is treated fairly regardless of their working pattern.
Ultimately, managing unused holiday and carry over is about ensuring compliance with statutory minimum requirements and treating all employees fairly. By using tools like ScheduleLeave’s holiday management software, employers can easily track leave entitlement, calculate pro rata holiday allowance, and manage carry over in line with UK employment law. Employees, in turn, can use these tools to check how much holiday they have left, plan their time off, and make sure they don’t miss out on their paid leave.
Tell your employees how annual leave accrual works
You need to inform new employees about how annual leave accrual works at your company, when they first start. The best way to do this is to include details of annual leave accrual in your company’s absence policy and in the employee’s contract. Employers must clearly outline their holiday policies in employment contracts to avoid disputes regarding holiday entitlement and carry over. This should include:
How much annual leave they’re entitled to
How annual leave is accrued
Rules regarding the carryover of annual leave, including what happens if an employee cannot take all their leave due to being on sick leave or statutory leave—they may be able to carry over some or all of it into the next leave year.
When your annual leave year starts and ends (Jan – Dec or April – March)
Are you looking for a simple way to calculate accrued annual leave, as well as track your staff’s holiday allowance? Sign up for your free trial of ScheduleLeave today
