When an employee crosses their employment anniversary, 4 weeks of annual leave become due to them (you can learn more about this here: How Annual Leave & Holiday Pay Work). Of course, employees don't always take their leave a week at a time, so when an employee takes annual leave, their balance should be reduced by the portion of a week (or weeks) they took.
What is a Week?
With leave being requested through PayHero in terms of Days or Hours, it's important to understand how we determine what a Week looks like for any given employee. This depends on whether the employee has a detailed work pattern specified or not.
Work Pattern (Days) - If you've set the Work Pattern on the employee to be Regular Week, Regular Days and Hours, or No Regular Hours, then PayHero knows exactly how many days the employee works in a week. This will be used to determine the employee's current leave balances, as well as what portion of a week to deduct when they take leave. These employees will also request leave in days or part days (1/4, 1/2, or 3/4 days). You can learn more about the work pattern here: Employee Work Pattern
In the example below, the employee works 5 days per week, so has 20 days of leave per year (4 weeks of leave x 5 days per week). Each day of leave they take will reduce their Current Leave Due by 0.2 weeks (one fifth of a week).
And in the example below, the employee works 4 days per week, so has 16 days of leave per year (4 weeks of leave x 4 days per week). Each day of leave they take will reduce their Current Leave Due by 0.25 weeks (one quarter of a week).
Work Pattern (Hours) - If you've set the Work Pattern on the employee to be No Regular Days, then PayHero knows how many hours the employee works in a week. This will be used to determine the employee's current leave balances, as well as what portion of a week to deduct when they take leave. These employees will also request leave in hours. You can learn more about the work pattern here: Employee Work Pattern
In the example below, the employee works 20 hours per week, so has 80 hours of leave per year. Taking 5 hours of leave would reduce their Current Leave Due by 0.25 weeks (5 hours divided by 20 hours per week = one quarter of a week).
No Regular Week - For employees with their Work Pattern set to No Regular Week, PayHero needs to calculate what 'a week' of leave looks like, by determining the employee's average days per week over a recent period. This is known as the 'Review Period'.
The screenshot below shows our default Review Period setting of 8 weeks, which means the employee's last 8 weeks of pays will be assessed to calculate their average days per week.
As an example, an employee with the following days worked in their pay history would have an average of 5.25 days per week, so taking 1 day of leave will reduce their Current Leave Due by 0.19 weeks (1/5.25th of a week). What a week is worth for this type of employee is likely to change from pay to pay, which is explained in more detail here: I haven't taken any annual leave, so why has my leave balance changed?
You can adjust this Review Period as required to suit your business. To learn more, see our Company Work Pattern support article.
Since this Review Period will be used to determine annual leave payments, it’s vital that both the employer and the employee agree around entitlements.
Under s21 of the Holidays Act 2003, to determine payment for annual holidays, the portion of the annual holiday entitlement taken must be agreed. This must be determined in relation to the employee’s work pattern at the time the holiday is taken. Employers and employees are strongly advised to discuss the issue of how the entitlement is to be provided in good faith at the start of employment (or when work patterns change) and agree up front as much detail as possible.
Ideally, this should be recorded in the employment agreement (see the example clause below). For employees whose work pattern is not predictable upfront, what genuinely constitutes a working week at the time annual holidays are taken will need to be determined by agreement with reference to the employee’s recent work pattern.
Review Period - Employment Agreement Clause
We suggest that a clause is included in the employment agreement describing how the portion of entitlement taken will be determined. In this example, we use a Work Pattern Review Period of 8 weeks:
1.1 Determining portion of entitlement taken
The employee and employer agree that the employee’s leave entitlement is apportioned in weeks, and the portion of leave taken will be paid and determined in accordance with the employee’s recent work pattern over the past 8 weeks.
For the purpose of determining the portion of the employee’s entitlement to annual leave that has been taken it is agreed that the following calculation will be used: