Understanding how holiday works is a key part of employment for both business owners and their teams. While most people know they are entitled to a certain amount of holiday each year, the concept of "accrued holiday" can be a bit more complex.
This guide explains how holiday accrual works, why it's a vital concept in UK employment, and how it impacts everything from a new starter's first day to a final payslip.
What is holiday accrual?
Holiday accrual, otherwise known as accrued holiday, is how employees build up their holiday allowance based on the number of hours they've worked. Employees will start accruing holiday from their first day of employment until their last day. This includes days on which they’re off, including sick leave.
What is holiday accrual used for?
Holiday accrual is a legal concept that explains how an employee accumulates their right to paid annual leave throughout their employment lifecycle. This also means that when someone starts a new job, they won’t immediately be able to take annual leave as it won’t have accrued.
Accrued holiday is handy in situations like:
When an employee starts their employment part-way through the year, holiday accrual helps pro-rate their holiday for the rest of the year
When an employee leaves the company part-way through the year, holiday accrual also helps work out if they’re due any holiday pay in their final payslip
When an employee is on long-term leave, such as caregiver leave, holiday accrual is used to work out how much holiday needs to be carried over to the following year
How to calculate holiday accrual
The most common way to calculate holiday accrual for employees is based on the annual leave allowance they’ll get in a year, divided by one month. This calculation will give you what one month’s worth of holiday accrual an employee should get. To do so, apply the following formula: Number of annual leave days in a year / 12 months = 1 month’s worth of holiday accrual.
Alternatively, you can calculate holiday accrual for employees based on the number of hours they’ve worked in the year. This is a useful method for part-time, shift and zero-hour workers. Apply the following formula: (Hours worked / full-time annual work hours) x full-time annual holiday entitlement.
You’ll need to include all the employee’s worked hours, even overtime if it's contractually guaranteed. We have a separate guide on calculating weekly pay.
Example
Imagine an employee working 20 hours per week. The full-time work hours per year for this part-time contract are 1,040 (20 hours x 52 weeks).
Given the UK statutory minimum holiday entitlement (5.6 weeks), the part-time annual holiday entitlement is 112 hours (5.6 weeks x 20 hours).
Consequently, for each hour worked, the employee accrues approximately 0.1077 hours of holiday (112 / 1040).
Are there alternatives to accrued holiday?
The downside to the holiday accrual system is that employees can quickly get limited with the amount of time off they can book, as it only accrues as the year goes by.
For a company, this can also come as a detriment as it may lead to many employees needing to book more holiday towards the end of the year, which could cause staff shortage issues.
As an alternative some employers opt for annual leave allocation, where employees receive their entire leave entitlement upfront at the start of the leave year (usually 1st January or April 1st).
The only risk here is in the event an employee leaves part-way through the year and has taken more leave than they’ll have accrued. In that scenario, the holiday pay due would usually be deducted from their final pay.
Wrapping up
Understanding holiday accrual is key for both employers and employees to make sure that you're operating against a fair and compliant holiday policy. Whether you follow a monthly accrual method or an upfront, full-allowance system, being transparent about how holiday leave is earned and managed is important.
Holiday accrual FAQs
How is holiday pay accrued?
Holiday pay accrual is an ongoing process, accumulating proportionally as an employee works. For full-time employees, they typically accrue approximately 2.33 days of holiday each month.
What does accrued holiday mean?
Accrued holiday signifies the amount of leave an employee has amassed based on their worked hours.
How do I calculate the accrued holiday?
As explained earlier, to calculate annual leave accrual, divide the hours worked by the total annual work hours and then multiply the result by the annual holiday entitlement.
For monthly accrual, divide the number of annual leave days in a year by 12. This method will give you a month’s worth of holiday accrual.
Can my employees carry over their holiday?
The law permits employees to carry over up to a maximum of 20 days if they were unable to take annual leave due to reasons such as illness, or if they were on maternity or paternity leave. However, you can adjust the specifics of these rules in your company policies or employment contracts.
We've written a guide on carrying over annual leave for more information.
Image from Unsplash published by NEOM
