It is common knowledge that it is a legal requirement to allow your employees to have paid holidays and usually calculating holiday entitlements are pretty simple.
An employee is entitled to 28 days for the full year, or you can use the online government holiday calculator to calculate the holiday entitlements if an employee starts/leaves part way through the year.
But, how do you calculate and implement holiday entitlements into your business if your employee’s hours are flexible or they’re paid by items made?
Recently this question popped up from one of our clients.
I did some digging and accessed some professional advice from ACAS, together we worked out the best way to implement the holidays into the business contract. We decided that using the casual worker method would work best, with a few tweaks to make sure it fitted in correctly with the businesses ethics.
With such a unique business program it’s essential to ensure you are following all regulations as well as keeping your employee’s flexible contract in place.
To calculate holidays based on a contract of this type you would first need to work out the holidays accrued and the rate of pay.
How to work out the holidays accrued: –
Calculation – 12.07% / 100 x 90 (hours worked month) = 10.86 hours accrued for the month.
The 12.07% figure is 5.6 weeks’ holiday, divided by 46.4 weeks (being 52 weeks – 5.6 weeks). The 5.6 weeks are excluded from the calculation as the worker would not be at work during those 5.6 weeks in order to accrue annual leave.
How to work out the rate of pay: –
This is based on a 12-week average, if an employee has been with you less than 12 weeks you can base the calculation on the period, they have worked for you.
Calculation – employee earns £3000 in 12 weeks, if you divide this by 12 it gives you the average weekly earnings of £250.00.
90 hours worked x 12 / 46.4 = 23.28 hours worked per week
£250.00/ 23.28 = £10.74
Don’t forget if the hourly rate is less then the minimum wage for the employee’s age, this will need to be boosted up to meet it.
How to work out the holiday pay: –
Once you have done the above calculations you can work out how much is due for the holidays taken, 10 hours taken @ £10.74 = £107.40.
It is essential that employees inform you of the days off they are taking as holidays for this to work, otherwise you won’t know which days are holiday entitlement and which are unpaid.
The holidays accrued will need to be recorded with every pay run to keep track of how many holidays they have accrued, taken and what the employee’s have remaining.
Its safe to say after working tirelessly on how this process would work both myself and the client are now happy with the outcome. Here at TI Accountancy we are happy to answer all your question and help your business boom. Even if it’s a question we haven’t come across before we will help as best as we can.