Calculating fairer holiday entitlement for flexible workers in the UK

Our recommendations

Holiday entitlement should be accrued on a rolling monthly basis

In our letter to the Department of Business, Energy and Industrial Strategy and the Department for Business and Trade, we set out six  key reasons for proposing that holiday entitlement for part-year workers and part-time workers with irregular hours should be accrued on a ‘as you go’, rolling monthly basis:

1. it‘s not feasible for employers to use a ‘fixed pot’ of annual leave for part-time workers with irregular hours
2. introducing a 52-work holiday entitlement reference period could undermine labour market flexibility and may not be workable for many employers, because it assumes that the employment contract is ongoing
3. many part-year workers, such as those in seasonal work, are taken on to meet fluctuating demand and are not even necessarily hired for a whole year
4. people on these working arrangements won’t necessarily know whether they are being given the correct leave entitlement or the correct holiday pay unless they regularly check and understand their payslips
5. a 52-week holiday reference period could make it hard for some of these people to work out their holiday entitlement and to calculate their holiday pay based on what happened to them over the previous year. This could be especially true for low-waged workers.
6. many of these low-waged workers could be in receipt of universal credit, so receiving an unexpected and significant amount of holiday arrears could affect their benefit eligibility.

Holiday pay and entitlement should be calculated in the same way

When it comes to calculating holiday pay, the most straightforward approach for employers would be to apply the same methodology to calculate both holiday entitlement and holiday pay. This would mean calculating holiday pay based on the same 12.07% calculation that employers currently use for holiday entitlement, based on basic pay and actual hours worked for the past month. Doing this would:

• bypass the challenge that not all payroll services will have average pay data to be able to base holiday pay on average pay over a 12-month period.
• avoid potential issues for businesses having to calculate a ‘flat average working day’ for workers working widely differing hours on an ongoing basis.
• reinforce the flexibility that is inherent in these working arrangements.

What evidence did we draw on?

To inform our recommendations, we drew on a variety of sources of insight, including consultation with:

 Members of the CIPD's senior reward network, which is made up of senior reward practitioners from across the private, public and voluntary sectors. 
•    Justine Riccomini, in her role as Public Policy Lead for the CIPD's West Yorkshire Branch, employment tax expert at the Institute of Chartered Accountants Scotland, and Board Director at the Chartered Institute of Payroll Professionals.