All employees are entitled to annual holidays. Some people refer to annual holidays as annual leave.
Purpose of the annual holidays entitlement
The purpose of the annual holidays entitlement is to provide employees with paid time off work for rest and recreation. All employees are entitled to this paid time off, though there are two specific situations in which employees can agree to receive holiday pay along with their regular pay instead.
When employees become entitled to annual holidays
Employees generally get their annual holiday entitlement 12 months after they have worked continuously for their employer (ie on their first anniversary of starting work). They get another four weeks annual holiday entitlement on each subsequent anniversary. The date for entitlement may only be changed from the anniversary date when:
- the business has a customary closedown period or
- an employee takes a continuous period of leave without pay of more than a week during the year.
How many annual holidays employees are entitled to
All employees get at least four weeks’ paid annual holidays each year (after each 12 months of continuous employment). Some employees have extra entitlement under their employment agreement on top of the minimum entitlement, eg they might have an additional week of annual holidays each year.
An employer and employee can agree on how to make sure the employee gets at least four weeks’ annual holidays based on the employee’s specific work pattern. This is particularly likely to be necessary when it is not clear from the employee’s work pattern how the entitlement will be met. What is a week for an employee needs to be determined at the time the annual holiday is taken.
Some employers of employees with unpredictable work patterns have used formulae, eg allocating ‘4/52’ of an hour’s holiday for each hour of work performed to determine their employees’ annual holidays entitlement. The Holidays Act 2003 does not provide formulae for determining annual holidays entitlement and using such a formula:
- may not be consistent with a week’s holiday being determined at the time the holiday is taken, and
- may not lead to all employees receiving their four weeks’ annual holidays entitlement,
- should be approached with caution.
It is recommended that annual holidays entitlement be determined to reflect each employee’s specific situation and work pattern rather than by applying a formula.
Agreements will sometimes describe annual holiday entitlement in terms of a number of days and/or hours rather than weeks. In this situation, the employer should still be able to show that the agreement does give the employee at least four weeks annual holidays each year.
If the employee’s work pattern changes, the employer still needs to ensure that the employee receives their full entitlement. This will involve reconsidering what genuinely constitutes a week for the employee. For payroll systems that record annual holidays in days or hours instead of weeks, the holidays balance will need to be reconsidered when an employee takes annual holidays, otherwise the employer may become non-compliant. To reduce the chance of error, it is advisable that an employee’s annual holidays balance is kept in weeks.
For employees who work the same hours on the same days each week, the annual holidays entitlement is simple to work out. Every 12 months (on their anniversary for annual holidays entitlement), the employee gets four of their working weeks of paid annual holidays. For example, the four-week entitlement for an employee who works 3 x 8 hour days per week will be equivalent to 12 paid days (3x4=12), assuming their work pattern doesn’t change.
Employees can have a predictable work pattern in a number of other different ways, for example:
- The total number of hours and days the employee works each week are the same but the number of hours each day or the days worked each week is different. In this situation, the employer and employee may agree to work out the holiday entitlement in either days or hours. (If the number of hours the employee works each day are not the same, this choice can lead to quite different consequences and the employer and employee should discuss the effects of these 2 different options with the employee as they could be disadvantaged in some situations).
- The total number of days the employee works each week are the same but the total number of hours changes. The employer and employee could agree to use days as an appropriate way to work out the employee’s four weeks annual holidays entitlement in this situation.
- The total number of hours the employee works each week is the same but the total number of days they work changes. The employer and employee could agree to use hours as an appropriate way to work out the employee’s four weeks annual holidays entitlement in this situation.
- The employee has a work pattern which is consistent but not based on a seven-day cycle, for example they work four days on, four days off. In this instance the employer should discuss the options with the employee in good faith. For example, the employer and employee could agree to define the week by using the longest week in the pattern, or by using an average week based on the pattern or by just referring to the week at the time the annual holiday is taken.
All these choices will have different consequences and should be discussed in good faith between the parties and the option chosen should be used consistently for that employee unless their situation changes. If the employee’s work pattern changes their situation must be reviewed and their annual holidays entitlement must be worked out based on the new work pattern.
For more information see our Holidays Act Guidance 2003 [PDF, 1.1 MB]
For some employees it might not be possible to define what a working week looks like in advance. For example, employees who only work if they choose to accept work when it is offered and have no guaranteed hours or employees who work to a roster but both their hours and days vary unpredictably each week.
For these types of employees, a week can only be determined at the time the annual holiday is taken. The employer and employee should first try to identify whether there is a pattern of work that could be used to work out a working week for annual holidays entitlement. This could be based on:
- the agreed hours in the employment agreement if these are a fair and reasonable reflection of the employee’s working week, or
- consideration of the days and hours the employee has actually been working in the weeks leading up to the holiday.
When employees can receive pay-as-you-go (PAYG) holiday pay with their regular pay instead of taking annual holidays
If an employee works so intermittently or irregularly that it is impracticable for the employer to provide them with four weeks’ annual holidays (and employees on fixed term agreements for less than 12 months) they may agree to be paid annual holiday pay with their pay. For more information see Pay-as-you-go for fixed-term or changing work patterns.
Employers and employees having problems with annual holiday entitlement can contact us for help.