Variable hours employees do not have set hours and can work irregular hours during a working week. They have no fixed working pattern.
They may have a nominal number of contracted hours (a minimum hour’s contract) but are likely to work more than those hours.
It is important to remember that there is a difference between an employee’s entitlement to holiday leave and their entitlement to holiday pay. This is particularly relevant when dealing with a variable hour’s employee.
Zero hours staff
If you employee zero hours staff in the way that they are intended to be used (very ad-hoc, seasonal, might not work at all for weeks and then work again) Then the easiest way of dealing with annual leave is to pay an annual leave accrual of 12.07% for every hour that they work
This can be paid monthly or stored up and paid at times when the employee requests it.
For example, if Sarah works 25 hours one month then she is entitled to 3 hours holiday pay (25/100×12.07=3 hours)
As these employees may have weeks off at a time there is no need to worry about calculating their holiday entitlement (time) as they have significant time off.
For Variable hours staff it is important to not only calculate holiday pay, but to also calculate holiday time that employee is entitled to so as to meet the statutory requirement that all employees receive 5.6 weeks leave per year.
Calculating holiday entitlement for variable hours staff
Where the full-time entitlement is to statutory minimum only (5.6 weeks or 28 days), variable hours employees accrue holiday at the rate of 12.07% of hours worked. You can calculate this as follows: 5.6 weeks divided by 46.4 weeks (i.e. 52 weeks minus 5.6 weeks – the time the employee is on holiday).
If there is contractual holiday entitlement in addition, the percentage accrued per hour will increase accordingly.
For example, say an employee with variable work hours has worked 7 hours. Within statutory entitlement, the employee will have accrued 0.84 of an hour’s holiday.
In practice, a company can estimate the actual average weekly hours the employee is likely to work and use this to calculate entitlement for the year.
For example, you could estimate that the employee would work an average of 20 hours per week.
Accrued entitlement would therefore be 9.5 hours per month (20 hours x 5.6 weeks/12 months rounded up to the nearest half-day).
This company then needs to put in a tracking system to ensure that this leave time is taken in the annual leave year. Harwood HR Recommend BreatheHR as a tool for tracking and managing employees annual leave entitlements.
A few times during the year, the employer can undertake an exercise to see if the employee’s average weekly hours are different from what they predicted and then adjust the annual leave accrual as necessary.
Can Variable hours employees book leave before they have accrued it?
Variable hours employees with more than one year’s service are entitled to request to take their holiday at any time. This is irrespective of whether they have accrued it at that point.
An employer is entitled, at any time, to refuse a holiday request on operational grounds. However, there are rules which govern an employer’s ability to refuse a holiday request on the basis that the holiday has not been accrued.
In other words, after the first year, an employee could ask for one week’s holiday right at the beginning of the holiday year. You may use operational reasons for saying “no” to this holiday. However, you would not be allowed to use the fact that it has not been accrued as the reason.
Calculating holiday pay for hourly paid staff
Companies need to pay holiday pay equivalent to the employee’s average pay in the previous 52 weeks.
This includes different rates for different types of work and commission or bonus payments.
Weeks were the employee did not work at all should be ignored and not counted towards the 52 weeks reference period (if the employee has less then 52 weeks salary data then use what you have for the calculation)
The calculation is to add up the previous 52 weeks gross pay amounts and divide by 52 to give you the average earnings to pay for the annual leave period. (this can be divided down to average earnings for a day if employees are only taking a days holiday at a time)
In summary
Variable hours employees should not be treated less favourably then other full or part time employees. They have the same rights in regard to time off work and what pay they receive when they are off.
It may be tempting to overlook the time off element of annual leave for variable hours staff and just focus on paying them the appropriate holiday pay. However, all companies need to encourage, plan and ensure that all employees regardless of their contractual arrangement receive the appropriate time off each year so as not to fall foul of the Working Times Directive.
