Calculating holiday entitlement for variable-hours employees
Calculating holiday entitlement for workers with regular hours is relatively straight-forward. But what happens when you have employees who work different hours every day, week, or month? How do you calculate holiday entitlement for irregular hours?
We’ve already covered how to calculate holiday entitlement for part-time workers, furloughed workers, casual workers, and how to calculate holiday pay for employees on a range of contracts. This article gets into the detail of calculating pay for your staff who are on irregular or variable-hours contracts (formerly referred to as zero-hours contracts), with an example.
You may know that legislation has been updated in regards to holiday calculations, effective for holiday years starting on or after 1 April 2024. Please see this article on the changes for more information.
What is a variable-hour employee?
An irregular-hours or variable-hours employee simply means the employee does not have set hours they work every day or week. Their hours change, so they won’t have a regular shift pattern and may do a different number of hours per shift (unlike shift workers, who will do a set amount of time per shift). Therefore, usually this employee is paid by the hour.
It’s worth noting that unless they regularly work hours equivalent to full-time hours, variable hours employees count as part-time for employment law purposes. They are therefore covered by legislation protecting part-time workers from being treated less favourably than full time workers. You need to be mindful of this when dealing with their entitlements so that you don’t accidentally discriminate against these employees.
It’s also important not to confuse irregular-hour employees with zero-hour workers. Variable hour workers differ in that they are usually permanent employees with different working hours every week, and therefore there is mutuality of obligation between the employer and employee.
What the law says
A note of caution on who counts as ‘irregular hours’ workers.
Who counts as an irregular worker?
The legislation states irregular workers are those who’s number of paid hours ‘that they will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable’.
It is extremely difficult to demonstrate that staff who, for instance, have guaranteed minimum hours every week or work an annualised hours pattern would meet this definition. If this is the case, we advise you to continue to treat them the same as other staff, so you don’t fall into any legal pitfalls.
What holiday entitlement is the variable-hours employee entitled to?
It depends on the total number of days of annual leave entitlement your full-time employees have.
The statutory minimum holiday entitlement for full-time employees is 28 days including any bank holidays given as days off, or 5.6 weeks a year. Your company may provide this or contractually give more holiday. You’ll need to use the total holiday entitlement you give to your full-time employees and apply this pro rata to your employees with irregular or variable hours contracts.
So, if normal holiday entitlement is 28 days inclusive of bank holidays, then your variable-hours employee will be entitled to 28 days, pro rata, depending on the number of hours worked. This is what you’ll need to communicate to your employees.
Note that you cannot specify a particular number of days as you don’t know how many hours they will be working each week/month etc.
How to calculate holiday entitlement for leave years starting after April 2024
For annual leave years starting on or after April 2024, the previously outlawed “12.07%” method of accruing holiday entitlement has returned as an option to use on irregular hours, zero hours and part-year contracts.
Statutory annual leave
The government calculator states:
For leave years starting on or after 1 April 2024, people who work irregular hours or for part of the year will build up (‘accrue’) leave differently. This means their entitlement will be 12.07% of the hours they work in a pay period, up to a maximum of 5.6 weeks.
For example, if an irregular hour worker has worked 50 hours in a month, and they are paid monthly, in a company that gives statutory annual leave allowance of 5.6 weeks a year, the calculation would be:
5.6 weeks holiday / 46.4 working weeks a year x 50 hours worked = 6.03 hours they’ve accrued as holiday.
Of course, if you provide more than the statutory annual leave allowance, this percentage will be higher than 12.07%.
Enhanced annual leave
To work out this percentage, the calculation is:
Week’s holiday / working weeks in a year (which is 52 weeks a year – number of weeks holiday) = % of holiday entitlement
You then multiply this figure by how many hours they’ve worked in that pay period.
So for example, if an irregular hour worker has worked 50 hours in a month, and they are paid monthly, in a company where total annual leave allowance is 33 days or 6.6 weeks (including bank holidays), the calculation would be:
6.6 weeks holiday / (52 weeks – 6.6 weeks) x 50 hours = 7.27 hours they’ve accrued as holiday.
(Employers would probably round that up to be seven and a half hours rather than seven hours 16 minutes!)
Check out our holiday entitlement calculator for irregular and zero-hour workers for more help on the calculation.
How to calculate holiday entitlement for variable-hours contracts, up to 1st April 2024
For a variable-hours employee, you would need to:
- Take the daily number of hours for a full-time employee eg. 8 hours, then multiply by the total number of holiday days in a year, including the bank holidays (whether you work on them or not). This will give you the number of holiday hours for a full-time employee.
Example A:
28 (days holiday) x 8 (hours per day) = 224 hours for full time holiday entitlement per complete holiday year
OR
Example B:
33 (25 days + 8 bank holidays) x 7.5 (hours per day) = 247.5 hours for full time holiday entitlement per complete holiday year
If your calculation for your variable-hours employee works out to more than your full-time holiday hours per full holiday year and your variable hours employee has not worked more hours than your full-time employees, then your calculation is incorrect.
You then need to work out the average number of hours that the variable-hours employee has worked over the last 52 weeks (or over the number of weeks worked if less than 52).
For example:
If the employee has worked for just 5 weeks, and has worked 12 hours in week 1, 23 hours in week 2, 40 hours in week 3, 16 hours in week 4, and 31 hours in week 5, add up the hours to find out the hours worked in that period.
Therefore, 12 + 23 + 40 + 16 + 31 = 122 hours worked.
Then divide 122 by 5 (the number of weeks worked) = 24.4 rounded up to 24.5 average hours worked by employee per week.
So, if this person requests holiday for a week in week 6, they will get one week’s pay at 24.5 hours, being the average number of hours that they have worked over the last 5 weeks and the hourly rate as being the average hourly pay over the last 5 weeks.
However, this amount of 24.5 hours per week is likely to change if working more or less average hours over a longer period of time. The calculation will be the same, just multiplied by the average number of hours worked.
Easy calculation in summary
Holiday entitlement at time of taking the holiday = Average number of hours worked in previous 52 weeks, or the number of weeks worked, if less than 52.
Holiday pay must be an average of the pay for the last 52 weeks, or the number of weeks worked, if less than 52.
