There are many HR duties you need to complete in order to run a business successfully. One of these duties might be the need to deal with holiday pay accruals for your employees. 

The rules about holiday pay and holiday pay accruals can be complex. But never fear because we are here to help with this guide on holiday pay entitlement and how holiday pay accrual works.

What is Holiday Accrual?

Most workers have an entitlement to 28 days paid holiday each year. Some employers, however, opt to use a holiday accrual system instead. The Government sets out the rules for holiday accrual in the Working Time Regulations. In this type of system, holiday pay entitlement builds up from the moment the employee begins work. As they continue in employment, they will accrue a proportion of their annual entitlement on a monthly basis.

What is Holiday Pay Accrual?

Holiday pay accrual is where an employee has leave left over at the end of the year. Under Government regulations, there is a requirement for employees to recognise holiday pay accrual for employees who cannot take all of their leave. How they calculate or administer this can differ from employer to employer.

holiday pay accrual explained by papershift

When Must a Holiday Pay Accrual be Made?

The need for the accrual stems from regulation FRS 102 section 28.1 (A). This section covers “short-term employee benefits.” It defines these as “expected to be settled wholly within twelve months of the end of the reporting period.”

This means that they may require a business to allow employees to carry over (or be paid for) unused holiday entitlement. For a company, this essentially means that any days of left-over leave may require an accrual to be put in place for the employee.

How is it Calculated?

When an employee takes a holiday, they should get the same pay while on leave as when they’re at work. This should be regardless of whatever their working pattern is. That doesn’t mean they will receive exactly the same amount as when they work. A business may leave out some bonuses or expense payments from calculations.

There are a variety of different methods for calculating holiday pay. Companies often base calculations on:

  • The number of days or hours regularly worked per week.
  • Hours worked on average over a period of time.
  • The regular shifts patterns of an employee.

What Are Employee Rights in Relation to it?

Holiday pay accrual is not a right of an employee, and an employer can force them to take all of their leave entitlement. If an employee, through no fault of their own, has leave leftover at the end of the leave period, then an accrual may take place. How the accrual works is up to the company. They may allow the employee to roll the holiday over or offer a one-off balancing payment. Balancing payments are common when an individual leaves a company without taking all their leave entitlement.

How Has COVID-19 Affected Holiday Pay Accrual?

The recent COVID-19 pandemic has made it incredibly difficult for many to work. As such, they may have found it hard to take all their leave entitlement. The government has recently changed the regulations regarding holiday pay accruals to account for this. Any worker who could not take their leave entitlement may carry it over to the next leave period. This will allow companies breathing space while protecting employee rights.

Written by Siva

I write & describe the value & benefits delivered by Paperhift's rota planning, staff time tracking, and employee payroll management software. Especially useful for Shift Planners, Rota Managers, Team Admins, and HR Teams 🙂

Illustration by Natasha Remarchuk from Ouch!