In the middle of 2022, the Supreme Court decided that hourly paid employees who are not contracted to regular hours were calculating their annual leave incorrectly. They suggested using the Calendar Week method instead of the percentage method. Businesses can choose which method to use, but it's a good idea to get advice from experts to make sure they're doing it right.
How does the Calendar week method work?
Employees get 5.6 weeks of paid annual leave each year. To figure this out, we calculate the weekly worked hours/days for each employee. We then multiply these averages by 5.6 to get the total entitlement for the year. This method is different from a percentage accruing rate as it doesn't include unpaid weeks in the average. The formulas for calculation are:
Total annual leave balance = 5.6 * (Total hours or days worked / weeks worked)
What does it look like in the app?
Holiday entitlements are shown in the role section of an employee's profile.
The annual entitlement and the current accrued balance will be shown here and on the team app.
Points to be aware of
If an employee does not work for an extended period they can still accrue holiday for the period that their employment is dormant. In this case, it is good practice to inform an employee of the period that they will be required to work and terminate employment for extended periods of inactivity.
If an employee is only hired for a proportion of the leave year, the employee will only be allocated that proportion of the total entitlement (e.g., leave period starts 01/04/23 and hired date is 01/07/23, the employee will get ¾ of the total entitlement calculated).
The rate will flex with the number of hours/days worked as it is a rolling average of the last 52 weeks.
What's the alternative?
Stick with 12.07% accrual
This is an option that Nory can support but the recommended approach is the calendar week method.