## How to calculate holiday pay (Part 3)

Everyone seems to find holiday pay calculations particularly complicated and confusing. So we've written a series of articles to try to clarify matters a bit by explaining some of the underlying maths.

This is the third episode of the series. If you've just arrived here directly, you might find it easier to start at the beginning.

## But we use a 12.03% holiday accrual rate!

So, from the previous episode we know that the statutory minimum holiday entitlement of 5.6 weeks is typically taken to be equivalent to an accrual rate of 12.07%.

Given that, you may be wondering why some companies use a 12.03% holiday accrual rate instead?

Remember when we assumed earlier that there are 52 weeks in a year? Well of course there aren't exactly. 52 x 7 only gives 364 days, meaning that there are actually 52 weeks and 1 day (= 52.1429 weeks) in a year. (Yes, I know that's not strictly true either, see below!)

So, feed this into the calculation we used earlier, and you get:

Accrual rate = 5.6 / (52.1429 - 5.6) = 0.1203 = 12.03%

Make sense?

## But what about leap years?

But hang on! What about leap years?

Since 52 x 7 only gives 364 days, that means there are 52 weeks and 2 days (= 52.2857 weeks) in a leap year.

So, feed this into the calculation we used earlier, and you get:

Leap year holiday accrual rate = 5.6 / (52.2857 - 5.6) = 0.1200 = 12.00%

Oh no, now we have different holiday accrual rates for different years!

## But years don't all start on the same day of the week!

And it gets worse...

Different years start on different days of the week.

So strictly speaking, you'd also need to take into consideration whether the extra one or two days fell on a weekend or a week day, as this means that the number of working days will change each year depending on where the year starts within the week.

For a five day week:

No additional week days, number of working days = 52 x 5 = 260

One additional week day, number of working days = (52 x 5) + 1 = 261

Two additional week days, number of working days = (52 x 5) + 2 = 262

A statutory minimum holiday entitlement of 5.6 weeks including bank holidays is 28 days, so the accrual rates in these cases are:

260 weekdays: 28 / (260 - 28) = 0.1206 = 12.06%

261 weekdays: 28 / (261 - 28) = 0.1202 = 12.02%

262 weekdays: 28 / (262 - 28) = 0.1197 = 11.97%

Oh no, it's suddenly all got really complicated and inconvenient!

## Why using a super accurate holiday accrual rate isn't actually necessary in practice

But good news!

*** YOU DON"T ACTUALLY NEED TO WORRY ABOUT ANY OF THIS IN PRACTICE ***

Because in reality, you're almost certainly going to round up the holiday you give people to the next nearest unit that you normally allocate holiday in, be it hour, half day, or day. You're not seriously going to attempt to allocate minutes and seconds worth of holiday, are you?

As long as you don't give people any less holiday than they're legally entitled to, you'll be fine.

And whilst you understandably will want to minimise any unnecessary overpayment, the amounts we're talking about are small.

In the worse case (but unusual) scenario of using a holiday accrual rate of 12.07% in a leap year with 262 working days, you'll only overpay holiday by about 2 hours for the year.

And consider the cost of employing someone to make overly complex holiday pay calculations. That will almost certainly outweigh any time/money saved by using more accurate year-specific holiday accrual rates.

Importantly, notice that the 12.07% rate derived using an assumption of 52 week years actually the highest of any of the more accurate holiday accrual rates. This means people accrue holiday at a slightly faster rate than they strictly should, and so gives people very slightly more holiday than they'd actually be entitled to. Consequently it will always be legally safe, irrespective of leap years and what day the year starts on. But it has the huge advantage that you can treat every year as being exactly the same, which makes things very much simpler. And once you've rounded up to the next holiday unit, the simplification will make little or no difference to the end result. And because you're always using a constant 12.07% holiday accrual rate that isn't dependant on which year it is, you can now contractually specify it. Which is a great idea for hourly paid workers, as it makes everything so much clearer and simpler.

Keep it simple!

Indeed both ACAS and the YouGov holiday entitlement calculator use the 12.07% rate.

## But we have more than 28 days holiday!

What about those generous employers who contractually give employees more the statutory minimum of 5.6 weeks including bank holidays (= 28 days for 5-day week workers)?

This means that employees must accrue holiday at a faster rate than 12.07%, since they earn more holiday in a given amount of time worked. So, using a holiday accrual rate of 12.07% would give them less than their contractual entitlement over a year.

But the appropriate holiday accrual rate in this case can just be worked out using the same method as before.

And to save you the trouble, I've done it for you!

(Hover over the figures to see how they were calculated)

Assuming 52 weeks per year and 5 working days per week for full time:

Full-time holiday days | Full-time holiday weeks | / | Full-time weeks worked | = | Holiday weeks accrued per week worked | Accrual rate |
---|---|---|---|---|---|---|

28 | 5.6 | / | 46.4 | = | 0.1207 | 12.07% |

29 | 5.8 | / | 46.2 | = | 0.1255 | 12.55% |

30 | 6.0 | / | 46.0 | = | 0.130 | 13.04% |

31 | 6.2 | / | 45.8 | = | 0.1354 | 13.54% |

32 | 6.4 | / | 45.6 | = | 0.1404 | 14.04% |

33 | 6.6 | / | 45.4 | = | 0.1454 | 14.54% |

34 | 6.8 | / | 45.2 | = | 0.1504 | 15.04% |

35 | 7.0 | / | 45.0 | = | 0.1556 | 15.56% |

36 | 7.2 | / | 44.8 | = | 0.1607 | 16.07% |

37 | 7.4 | / | 44.6 | = | 0.1659 | 16.59% |

38 | 7.6 | / | 44.4 | = | 0.1712 | 17.12% |

39 | 7.8 | / | 44.2 | = | 0.1765 | 17.65% |

40 | 8.0 | / | 44.0 | = | 0.1818 | 18.18% |

And you'd take a similar approach if your normal working week was only 4 days long, and so on.