In this episode, we explore the crucial topic of holiday pay for employers. As business owners, we bear many responsibilities, and additionally, one of the most significant is towards our staff, our workers. We will explain why honouring this obligation is essential not only for legal compliance but also for the overall success of your business.

Who Is Entitled to Holiday Pay?

In the United Kingdom, all workers, including part-time, full-time, or even those on zero-hours contracts, have an entitlement to receive holiday pay from the moment they start working. Consequently, providing fair compensation for employee time off to all eligible employees is a fundamental aspect of being a responsible employer.

How to Calculate Holiday Pay?

Let's clarify how to calculate compensation for holiday time off for your employees. The statutory entitlement for holiday pay in the UK is 28 days a year, equivalent to 5.6 times an employee's normal working week. For example, if an employee works five days a week, they are entitled to 28 days of paid time off per year. Additionally, you can choose to provide additional holiday pay beyond the statutory 28 days.

The Crucial Importance of Honoring Holiday Pay Obligations

1. Legal Requirement: Ensure you meet the legal obligation to provide holiday pay. Failure to do so can result in legal action against your business, leading to costly consequences, including court costs and damage to your reputation as an employer.
2. Protect Your Reputation: Demonstrate your commitment to your employees and uphold your standing as a responsible employer. Moreover, a positive employer reputation can attract and retain talented individuals, crucial for the success of your business. Additionally, it enhances your overall brand image, making your company an employer of choice.
3. Boost Productivity: Invest in your employees' well-being through proper compensation for time off. This allows them to recharge and return to work more energized and productive, benefiting both your employees and your business.
4. Tax Deductible: Remember that compensation for holiday time off is tax deductible. Providing a financial incentive to ensure your employees receive the time off they deserve. This allows you to optimize your tax planning and reduce your tax liabilities, thus contributing to your company's financial health.

Key Takeaways

We cannot emphasize enough the significance of employee time off and holiday pay for employers. By treating your employees well and providing fair compensation for time off, you are investing in the success and reputation of your business. So, let's prioritize honouring this obligation and continue building workplaces that foster loyalty, dedication, and prosperity.

Get in touch!

We'd love to hear your thoughts on this episode! Get in touch with us through our website or social media channels. Share your insights and experiences about holiday pay and employee time off. Together, let's build a community of responsible employers.

Hi folks. Welcome to another episode, episode 178 of the I Hate Numbers Podcast. Today I'm going to be diving into a crucial topic for all employers - holiday pay. Now, as business owners, we have many responsibilities on our shoulders, and one of them is towards our staff, our workers. In this podcast, I'm going to explain why it's essential to honor this obligation, and it's not just for legal reasons, by the way, but because it's good for your business.

You are listening to the I Hate Numbers Podcast with Mahmood Reza, the I Hate Numbers Podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

My name is Mahmood. I'm a business finance coach, author, and accountant of the firm, I Hate Numbers. Over my 28+ years of experience, I've assisted thousands of business owners like you in making more money, improving financial literacy, reducing stress, tax liabilities, and anxiety, and trust me, that's something to celebrate.

Let's crack on with a podcast. Let's start by clarifying who is actually entitled to holiday pay. In the United Kingdom, just like in most countries around the world, holiday pay accrues for your workers, those who are employees. It doesn't matter whether they're part-time, full-time or even on zero-hours contract, there is a legal entitlement to holiday pay

from the moment they start working for you, whether that's one hour of work, whether that's a week's worth of work, holiday pay accrues when that individual works for you. However, freelancers and directors without service contracts are exceptions, and everybody deserves their fair share of holiday pay.

Now, first thing, let's understand how to calculate holiday pay. You know, there's a simple magic multiplier that I like to use. And that multiplier is 5.6. That 5.6, by the way folks, is equivalent to the statutory entitlement or 28 days a year. So for example, if somebody works a five-day week as a full-time employee, they are entitled to five times 5.6, which gives us the 28 days of holiday pay for the year.

Nice and straightforward. That 28 days, by the way, can include bank holidays if you so desire. The 28 days is the statutory entitlement. There's nothing to stop you as an employer providing more holiday pays on top of that 28 days, that's your choice. Let's consider the situation with part-time work. Let's say you have a part-time worker who works three days per week.

Now, they would be entitled to three times 5.6, which is equal to 16.8 days of statutory holiday pay during the year. There are alternatives, by the way. The magic top 0.07% comes up, but there's a link in the show note by there to a podcast I did earlier on holiday pay, which goes into those calculations in even more depth if you wish to.

Now, things can get a bit trickier for those who are on zero-hours contracts. In such cases, you'll need to average the number of hours they've worked over the last 52 weeks, and use it as a reference point to calculate their holiday pay. So there's no exception, there's no argument to say somebody works a fluctuating amount of hours, and therefore no holiday paid title.

That's completely wrong. And the bottom line is, no matter who your worker is, nobody is excluded from being legally entitled to holiday pay. So make sure you've got this covered. Now, the next thing I want to address is why honouring this obligation is crucial. Underline that word crucial. Firstly, it's a legal requirement and if you fail to pay holiday pay and a worker decides to leave your employment, they can take legal action against you.

A tribunal can be called into play, and trust me, that's not a situation you want to be in. Legal battles can be costly. You may end up paying not just the holiday pay, but also court costs. In addition, your business reputation is there to be exposed. If you want to be seen as an employer who cares about their workforce and who wouldn't, you must honour these obligations.

Neglecting to do so, damages not only your reputation, but it shows a lack of integrity and responsibility. Having said that, it’s not just the legal and reputational reasons, even though these are good, solid reasons. There are beneficial business reasons to consider as well. Employers who treat their workers well and provide holiday pay and other benefits often become known as a great place to work.

This helps attract and retain talented individuals, which is vital for your business' success. Think about it this way. Do not commoditise your workers. They're an essential part of the fabric of your business. They're an essential part of your business success. They contribute to generating value, providing services, and supporting your overall operations.

Treating them well is an investment that pays off in loyalty and dedication. Moreover, when workers take time off, they know they'll be paid for it. There's no issue, no challenges. They return recharged and more productive. It's a win-win situation for both you and your workers. But there's another bonus.

Holiday pay is tax deductible, so from a tax efficiency perspective, it makes sense to make sure you've got this sorted. Before I wrap this up, folks, let me highlight a couple of important points. First, avoid what's called rolled-up holiday pay. That's where holiday pay is already included in a person's hourly, weekly, or monthly rate.

If that's the case, you need to renegotiate. That is not permitted. It's not allowed. And it needs to be renegotiated if part of somebody's contract. In addition, if calculating holiday entitlement seems extremely daunting, don't worry. Check out the show notes for a link to a handy holiday pay calculator that does the mathematics for you, does the heavy lifting and keeping your brain nice and relaxed.

And in conclusion, please don't view holiday pay as a burden. Remember, investing in your workers means investing in your business's success. Treat them well. And they'll reward you with their dedication and hard work. Until next week, folks, I'll see you on the other side. We hope you enjoyed this episode and appreciate you taking the time to listen to the show.

We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.