All You Need to Know About Holiday Accruals
Published: 17/06/2024
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Holiday accruals are a part of holiday management you can’t neglect. In theory, they should be easy to calculate. However, there is no one-for-all approach, and less common business models can make it a complicated process.
Every employer is legally obliged to provide their workers with a minimal holiday entitlement. This brings to the table the concept of holiday accrual, a process that isn’t always as straightforward as it ought to be. The key problem with it stems from the fact that not every business operates the same when it comes to work-hour distribution and compensation. To aid in working out the correct way to calculate holiday accruals under more complicated circumstances, the government created a free tool. But its accuracy is debatable.
In this article, we will cover the key things you need to know when it comes to holiday accrual, as well as explore potential different scenarios. We will also talk about ways to make the process easier and what tools you might need, regardless of what your unique circumstances are.
Holiday accrual is the number of paid off-work days an employee gets based on their working hours. It is most common in workplaces that run on a pro-rata basis, offer different hourly rates or have hours that vary each pay period. It can be found in companies with other structural variations too.
While easy in theory, a variety of factors can make holiday accrual difficult to calculate. Despite there being formulas and a government official tool, many businesses still spend a lot of time working their process out.
Let’s start off with the easy things, such as dissecting holiday accruals a little further as well as exploring some of the common formulas used to calculate them. As we’ve already mentioned, they are not applicable to all businesses but are widely used by many. In other words, let’s dig into some essential things you need to know concerning the topic.
While the two are very similar, they are not the same. Let’s begin with holiday pay accrual. To put it briefly, it stands for compensating the workers for their minimum holiday entitlement that has not been taken. Despite the word ‘pay’ implying financial reimbursement, it’s up to the employer whether they compensate the employee through payment or transfer the leftover time to a different date. In other words, the holiday carryover can be seen as a form of holiday pay accrual.
Holiday accrual, on the other hand, is a term that stands for the overall accumulated leave time, whether it’s been claimed or not. Note it refers specifically to paid time off, meaning that it does not apply to parental, sick or leave outside the minimal holiday entitlement. There are exceptions, but they are very rare and are often handled by businesses in accordance with their general policies. Despite being different things, holiday accrual and holiday pay accrual are closely intertwined. Their calculations involve the same variables and often face similar issues that we will discuss later in this article.
Since our main topic is holiday accrual, we will be covering its calculation. There are three options that dictate how you will be determining one’s accrued time off: hours worked per week, days worked per week or weeks worked per year. All three, however, follow the same formula. Of course, there are exceptions to this such as zero-hour contract workers, annualised or compressed hours and shift work. Again, we will address these in the next section.
The standard holiday accrual calculation formula is the following: the number of days worked (including bank holidays) divided by 12. For weekly holiday accrual specifically, you can multiply the days worked per week by 5.6. Quite often, you won’t get a full number. For example, after running the formula, the employee’s weekly accrual is 1.40 days. Normally, you would be tempted to round it up, however, it is forbidden by law to round it down. In these scenarios, you can let the worker choose to take one day off and part of another day, or wait another week till it gets rounded up organically.
In this next part, we will be looking into unique circumstances that may make holiday accrual calculations tricky. While the above-discussed formulas are still relevant to most of these scenarios, they are more difficult to apply.
Even with the formula in place, calculating holiday accruals isn’t always a straightforward process. Especially when dealing with workers having different pay rates depending on factors such as day of the week, AM/PM, overtime or other criteria. Because they are paid varying hourly rates, calculating what they are owed in holiday includes several equations and makes great grounds for confusion. For both you and the employees who may not understand the ins and outs of how the time off is allocated.
Understandably, it’s a task that eats up a lot of time and is very prone to human error. As a rule, automation is better at tackling it than any person would be. There are two routes. One would be using an official government calculator. It can be used by both the employer and the employee to self-assess. However, it has many limitations and isn’t designed to deal with complex calculations. The other would be getting a holiday management system, one that offers the feature of holiday accrual calculation. It’s usually more accustomed to your needs.
Another factor that can make holiday accrual calculations difficult is that there is a wide range of employment types. Most holiday management tips / common practices are built around traditional full-time or part-time workers. They can also be easily adapted to either hourly-paid or salaried employees. What is often forgotten is that there are other employment types such as zero-hours contracts, freelancers, temporary agency workers and many more.
Once again, the government calculator is a good place to start, but it may not cater to some of the more unique settings. Designated holiday systems, on the other hand, are certainly capable of accommodating even the rarest combinations of irregular hours and different employment times. The software market is wide and always growing, meaning there is a solution for literally everyone. Sometimes, the holiday management system will be part of a bigger platform - like it is at Timesheet Portal.
There is a way to easily calculate holiday accruals, no matter what setup you have. Whether the formulas are difficult to adjust to your settings or completely irrelevant, we have a solution for you. And even if the traditional approach works, you can still benefit from it.
As you must have understood by this point, we strongly recommend getting a holiday management system for calculating holiday accruals. While in most situations they aren’t hard to determine manually, there are plenty of intricacies that can arise across different businesses. To put it shortly, there is no one-size-fits-all approach when it comes to holidays. And a designated system can help you with your unique setup.
Not to mention, this is far from the only benefit a holiday management platform offers. It’s also a great tool for keeping track of holiday requests as well as managing their approvals. Additionally, it provides a centralised view of your team’s availability for months ahead, allowing you to plan your time and resource allocation more strategically. Some systems even come with shift scheduling features, saving you time in that department as well as making it easy to fill in for short-notice absences. The best part is that it’s not a big investment, but it is certainly one that will enhance your business moving forward.
Holiday accrual is among the key holiday management-related procedures. However, the most spoken about methods of calculating it are only applicable to businesses that run within the common setups. They don’t support things such as zero contracts or differentiating rates, which makes holiday accrual calculation difficult. That said, the existing formulas and online tools aren’t always your best bet. It is also important to remember that holiday accrual and holiday pay accrual are not the same thing.
But there is some good news for businesses that find the common advice in calculating holiday accrual either irrelevant or time-consuming. There is a way around this issue for literally anyone, no matter how unique your circumstances are - a holiday management system. With millions of solutions available on the market, there is something for everyone. Not to mention, a good holiday platform will bring other uses to your business, such as better alignment and visibility of your team’s availability.
Looking for a way to calculate holiday accruals in your business? We can help.