Calculating & Working Out Holiday Accrual

Holiday accrual is when an employee accumulates paid holiday leave on a monthly basis. Through holiday accrual, employees begin earning paid holiday from their first day on the job. 

The Working Time Regulations 1998 require companies to offer employees 28 days (or 5.6 weeks) of paid holiday annually, although you can offer more. 

According to Acas, all employees have the right to paid holiday regardless of whether or not they’re full-time, part-time or following a zero-hours contract. 

Holiday pay accrual is the amount of holiday time that an employee has left over at the end of a 12-month period that has not been used or paid. An employee is entitled by law to payment for this unused holiday time, although you can decide how this is compensated, whether through payment or by honouring this holiday time at a later date. Holiday accrual refers to any paid holiday time accumulated, regardless of whether it’s been used or not.

Holiday accrual works based on employee pay or annual salary and the number of days or hours they’ve worked. So for every hour they work, they earn a percentage of pay rate that counts towards holiday pay. This builds as an employee works since it follows the method of accruing holiday based on the number of hours, days or months worked. 

An employee can decide to take their remaining holidays through to the end of their period of employment. But, if they do not choose to make this arrangement with you, as the employer, they must be paid their remaining holiday pay accrual. 

Unless you are seeking to put your employee on garden leave, you have to work with them to determine whether they want to use their remaining vacation. You cannot force them unless it is explicitly stated in their employment contract or employee handbook.

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Holiday accrual can be calculated by: 

• Hours worked per week

• Days worked per week

• Weeks worked per year 

This is true for most employees. But, there are also ways to calculate holiday accrual if the employee works irregular hours, has a zero-hours contract, works in shifts or works by annualised or compressed hours.

To calculate holiday accrual by days, determine the number of days (including bank holidays) that the employee worked, and then divide that number by 12. You can also calculate it weekly by multiplying the days worked per week by 5.6.

If an employee working a full year worked 20 days in a calendar month, divide that number by 12, resulting in 1.66 days. Since 1.66  isn’t exactly two days, they could take a partial second day or wait until they get up to two full days. 

In this case, the worker in question would be entitled to that many days per month. Remember that you are not allowed to round down holiday accrual by law.

The main alternative to holiday accrual is up-front holiday plans, when employees are given their whole entitlement on their first day. This can be risky, as an employee can still be entitled to their full holiday accrual mandated by law, even if they did not work a full year.

An accrual deficit is when an employee uses all their holiday before the 12-month period of their employment ends, and they quit or otherwise leave the position. This can happen when holiday time is granted in advance.

If this happens, the company can charge the worker for the unearned holiday time, such as by garnishing final payments.

Your company will need to reimburse the employee for the time owed. One option is giving an additional payment at the end of the employment period. 

To calculate holiday accrual, take the number of days the employee worked, and divide it by 12. Also, check out Personio’s blog post on The Employer’s Complete Guide To Calculating Holiday Pay.

Determining holiday accrual doesn’t have to be complicated. Personio makes it easy to keep track of all personnel data, absences, time registration and attendance. Book your free demo to learn how Personio can help you manage everything in one place.