Everything you need to know about calculating employee annual leave

Making sure your employees get the right amount of time off is essential and not just because everyone loves a good holiday—it’s a legal obligation. Calculating annual leave correctly is crucial for maintaining a happy and productive workforce. In this guide, we’ll walk you through everything you need to know to confidently manage employee leave, with guidance on how to calculate annual leave, how to calculate pro-rata holiday and more, ensuring compliance and fairness across the board.

 

Understanding annual leave

Annual leave is more than a break from the daily grind; it’s about work-life balanceand employee satisfaction. Calculating it right helps your business stay compliant and helps keep your team content.

What is annual leave?

Annual leave in the UK is a statutory requirement, meaning all employees (and this includes workers here too) are entitled to paid time off. All employees are entitled to a minimum of 5.6 working weeks of paid holiday a year, which can include public holidays. This entitlement is crucial for employees to relax and recharge, ultimately benefiting their productivity and wellbeing. Employers must ensure they comply with these regulations, providing clarity and fairness in their leave policies.

 

Types of contracts and annual leave

Full-time employees usually have straightforward leave entitlements, but it can be a bit more complex for part-time, temporary or variable hours staff.

 

How to calculate annual leave

Now, let’s break down the calculations needed to make sure everyone gets their fair share of leave.

Full-time employees

For full-time employees working 5 days a week, the calculation is straightforward: 5 days a week multiplied by 5.6 weeks holiday, equals 28 days of leave per year (including any bank holidays).

Part time holiday

We often get asked how to calculate pro-rata holiday. For part-time employees, calculating pro-rata holiday requires a bit more work. If the employee works set days a week, then these set days are their working week – for example if they work 3 days a week, the calculation is 5.6 x 3 = 16.8 days per year. This would include any bank holidays that fall on the employee’s working days that year.

Temporary contract

If the contract is temporary then the employee would receive a pro-rata calculation of the annual entitlement, for example, half of the annual entitlement if the contract is for six months.

Zero or variable hours 

It becomes more complicated if the employee is on an irregular or zero-hours contractas they have no set hours each week. New law was passed in January 2024 to try to make calculating holiday pay more straightforward for ‘irregular hour workers’ and ‘part-year workers’ (e.g. term-time only employees) — you can find out more in our blog ‘How is holiday pay changing in 2024’.

Holiday pay

The rules around holiday pay can be complex if the employee receives additional payments for their work, for example commission, overtime or certain allowance and bonus payments.

If the employee works irregular hours, then holiday pay is based on all the monies they receive, including any commission etc. However, if the employee works regular hours and has a set wage, then (as a minimum) 4 working weeks of their holiday entitlement should be paid including any ‘normal’ payments received such as ‘regular’ overtime, average commission and bonuses/allowances that are intrinsically linked to their work. The employer could choose to pay the remaining 1.6 working weeks’ holiday at the basic weekly wage, but it can certainly require admin work to separate out the two periods.

Learn more in our employer’s guide to holiday pay.

 

Common challenges

Calculating and managing leave isn’t always straightforward. Here are some common challenges and solutions.

Handling rules on taking leave 

Companies often have specific rules regarding taking leave. For example, that in the first year of employment, employees can only take holiday once it has been accrued each month. Or that employees are not allowed to take holiday during set busy periods or (conversely) that they must take some of their holiday during shut-down periods. It’s vital to document and communicate these rules in the policies clearly to avoid misunderstandings.

Managing carry–over leave

Another challenge is managing carry-over leave, where unused leave from one year is transferred to the next.

The usual rule on any statutory holidays left over at the end of the holiday year is that they cannot be carried forward to the next year and are lost, although an employer can choose to apply this ‘use it or lose it’ rule to only 4 weeks holiday and can allow employees to carry forward some or all of the rest – e.g. 1.6 weeks a year.

However, case law and now legislation has established exceptions to this ‘use it or lose it’ rule in certain circumstances.

If a worker has been unable to take their full holiday entitlement because they have been on statutory family-related leave, e.g. maternity leave or shared parental leave, they will be entitled to carry over the unused amount, up to the full 5.6 weeks, to be taken in the next holiday year.

If a worker has been unable to take their full holiday entitlement because they have been off sick long term, they will be entitled to carry over up to 4 weeks of unused holiday, which must then be taken within 18 months of the end of the holiday in which it was accrued.

Finally, if an employer has prevented or failed to allow a worker to take and/or be paid for their full holiday entitlement, or has failed to inform them that any unused holiday will be lost at the end of the holiday year, the unused amount, up to 4 weeks, can be carried over.

Tools and resources

Managing leave can be simplified with the right tools and support.

Helpful HR software

Investing in HR software can streamline leave management, reducing errors and admin time. These tools can automate leave calculations, track requests, and provide visibility on team leave patterns. Popular HR software solutions offer features like automated approval workflows and comprehensive reporting, making it easier to manage leave and stay compliant.

 

Eager to simplify your leave management process?

With the right tools and knowledge, you can make sure your business not only complies with UK regulations but also supports a happy, well-rested workforce.

Gain access to our comprehensive HR Services & Employment Law services, offering a 24/7 HR advice line with consultants ready to help. Our HR Software, Atlas, streamlines compliance tasks, while our experts create documents for you and provide essential guidance tailored to your industry. Plus, we’ll help you prioritise employee wellbeing to help you nurture a healthy and productive workplace.

Contact us today to learn more about how Citation can support your business with comprehensive holiday pay guidance and a smooth transition into the latest regulations. As a client of Citation, our HR & Employment Law Consultants will always be available to provide support on how to calculate annual leave.