In the absence of a relevant agreement, payment in lieu of unused statutory holidays on the termination of a worker's employment must be calculated according to the formula laid down by the Working Time Regulations (WTR) :
(A x B) - C
A is the period of leave to which the worker is legally entitled in a full holiday year under regs.13 and 13A of the Working Time Regulations 1998;
B is the proportion of the total number of working days (see below) that have expired from start of holiday year to the termination date divided by the total number working days in the holiday year;
C is the period of leave already taken by the worker between the beginning of the holiday year and the termination date.
In calculating B, question arises if you count all the calendar days from start of holiday year to end employment date and divide by 365 or is it counting working days from start of holiday year to end of employment and dividing that by the total number of working days in the year.
Contract of employment
Where the contract of employment is silent on the matter, earlier case law like Thames Water Utilities v Reynolds 1996, the Employment Appeal Tribunal (EAT) suggested that you would have to calculate the holidays the employee is owed using 1/365th of their normal salary i.e calendar days and this was because Section 2 of the Apportionment Act 1890 provides that ‘all periodical payments in the nature of income… shall, like interest on money lent, be considered as accruing from day to day, and shall be apportionable in respect of time accordingly’.
However, the Scottish Employment Appeal Tribunal (EAT ) have since held in Leisure Leagues UK Ltd v Maconnachie 2002 that the daily rate of pay be calculated by dividing the worker’s annual salary by the number of working days in the leave year as opposed to the number of calendar days in the year and this decision was approved subsequently by the EAT in Yarrow v Edwards Chartered Accountants 2007.
In the Yarrow case, HHJ Peter Clark held that when calculating outstanding holiday pay on termination of employment for the purposes of the Working Time Regulations (WTR), a "day's pay" should be based on the number of working days per year, and not the number of calendar days as the provisions within regulations 13,14 and 16 of WTR and section 221 to 224 of Employment Rights Act 1996 ( concerning calculation of a week’s pay ) take as their working assumption the hours actually required to be worked not the hours in a 24hour day or 7 day week.
As for rounding of holidays, where employment is continuing, the employer may round up the fraction to a more convenient half a day’s leave. However, where a worker has accrued say 0.3 of a day’s leave and his employment terminates, he will receive payment for 0.3 of a day’s leave only i.e. does not have to be rounded up but may be prudent to do so.
If you have any questions about holiday entitlement please call us on 0333 240 7208 or contact us here.
