How to Calculate Holiday Entitlements for Payroll

As it’s the summer and peak holiday season, we get many, many questions about holiday pay and holiday entitlements. In fact, one of the most common errors we see when we work directly with clients on their payroll is the miscalculation of holiday pay or entitlements.

To begin, let’s get back to basics. Holiday entitlements are governed by the Organisation of Working Time Act 1997. This legislation sets out statutory rights for employees in relation to lots of things but in particular, rest, maximum working time and holidays. Paid annual leave can be complex.

I’ve summarised the questions that we get regularly from our clients. Hopefully you can identify with them.

1. Are all employees entitled to a paid vacation?

As an SME employing staff under a contract of employment, the Act applies to you and all your employees. If you have contract staff that are employed through an employment agency, it is their responsibility to pay holiday pay not yours. So all your employees, both full time and part-time are entitled to a paid vacation.

2. Is everyone entitled to holidays or is there a qualifying period for holiday entitlement?

There is no qualifying period needed in order to avail of holiday entitlements. All time worked qualifies for paid holiday time.

3. Is there a set amount for holiday entitlements?

The minimum holiday entitlements for employees who work at least 1,365 hours in a year is a 4 weeks. For employees working less, holiday entitlements are calculated on a pro-rata basis. This connects well to the above.

4. How do you calculate holiday entitlements?

Holiday pay is calculated depending on how much work is done in the leave year and how it is calculated. There are three main ways to calculate holiday entitlements:

  • 4 weeks off
    • This is where an employee works 1,365 hours in a year. They will get 4 working weeks.
  • One third of a working week.
    • One-third of a working week for each month in the leave year in which he or she works at least 117 hours.
  • 8% of hours worked
    • 8 per cent of the hours he or she works in a leave year (but subject to a maximum of 4 working weeks) An employee may use whichever of these methods gives the greater entitlement. Once you have the working hours calculated, most payroll software packages will be able to help you identify which method is better.

5. I have several part time staff. How do I calculate their entitlement?

Generally, the annual leave for part-time workers is calculated using the 3rd method, that is 8% of hours worked. If you work full time for some months and the rest of the year you work part time, you should calculate the leave for the full-time and the part-time periods of work separately.

6. Who determines when holidays can be taken?

You, as employer typically determines the times at which annual leave is granted to an employee. It is not uncommon for employers to request that some days are held back for a summer or Christmas break. Also since 1 August 2015, employees can accumulate statutory annual leave entitlement during a period of certified sick leave. Time spent on maternity leave, adoptive leave, parental leave, force majeure leave and the first 13 weeks of carer’s leave is treated as though you have been in employment and this time can be used to accumulate annual leave entitlement.

We know holiday pay is complex. We process payroll for clients every week. Calculating holiday entitlements can be very complex so please get in touch with us about anything in this article. Contact us over email or phone or directly through the site.  We can help advise you so you don’t fall foul of the Act.