Charlotte Reeves
Getting statutory holiday entitlement right from day one
Every worker in the UK is entitled to 5.6 weeks of paid holiday each year. For a full-time employee working five days a week, that's 28 days, and you can include bank holidays within that figure if you wish. Part-time staff get the same 5.6 weeks, just pro-rata based on the days they work. Someone working three days a week, for example, is entitled to 16.8 days.
There is a cap: statutory entitlement cannot exceed 28 days, no matter how many hours someone works. If your contracts offer more than the legal minimum, that's a contractual matter and you must honour it.
Holiday entitlement starts accruing from the first day of employment. A common mistake is to wait until a probation period ends before allowing holiday to build up. Workers begin accruing from day one, even during their notice period and even on a zero-hours contract.
For irregular hours workers, the calculation can be more involved. Rather than trying to work out accrual on every payslip, many businesses find it simpler to use a rolling 52-week reference period to establish average pay. This is also useful when someone actually takes their holiday.
Calculating holiday pay correctly
Holiday pay must reflect what a worker would normally earn. For staff on a fixed salary, that's straightforward: you pay their usual wage for the days taken off. But for anyone whose pay varies, you need to look at the last 52 weeks in which they worked and calculate an average.
This average should include:
- Regular overtime, even if it isn't guaranteed
- Commission payments
- Bonuses tied to performance or regular work patterns
- Travel allowances and other regular payments
The 52-week reference period replaced the old 12-week average and applies to most workers. If someone has been employed for less than 52 weeks, you use the weeks they have actually worked, ignoring any weeks with no pay.
One of the most common errors is paying only basic pay when someone regularly earns more through overtime. This can lead to underpayment claims, and tribunals take a dim view of it. If in doubt, work out the average, pay the higher amount, and keep clear notes showing how you reached the figure.
Understanding statutory sick pay
Statutory sick pay (SSP) is paid by you, the employer, not by the government. It applies to employees who are off sick for more than three consecutive days, including non-working days. The first three days are "waiting days" and are unpaid unless your contract says otherwise.
SSP is paid at £116.75 per week for up to 28 weeks. To qualify, an employee must earn at least the Lower Earnings Limit, which is £123 per week for the current tax year. Agency workers and those on short-term contracts may have different rules, so check each case individually.
You can't reclaim SSP from HMRC in most cases, which is why accurate record-keeping matters. If you overpay or underpay, correcting it later is far harder than getting it right first time.
Many small businesses choose to offer more generous sick pay than the statutory minimum. That's your decision, but make sure it's clearly set out in your contracts or staff handbook, because once it's offered, it becomes a contractual entitlement.
Keeping absence records that stand up to scrutiny
You need to record every absence, including the dates, reason, whether it was paid, and how much was paid. If you use payroll software or a spreadsheet, make sure it captures holiday and sickness separately. Mixing them up is a classic audit trap.
For SSP, you must keep records for three years after the tax year they relate to, as HMRC can ask to see them. If you use an accountant or payroll provider, they'll usually keep these records for you, but ultimately it's your responsibility as the employer.
Good records also help you spot patterns. If someone is regularly off on Mondays, or their absence always coincides with busy periods, you may need to have a conversation. That's not being suspicious — it's good management. The law protects workers who are genuinely sick, but it doesn't protect those who misuse the system.
Practical steps for small business owners
Here's a simple routine that keeps most businesses out of trouble:
- Calculate holiday entitlement from day one, including for part-time and casual staff
- Use a 52-week rolling average for anyone whose pay varies
- Record every absence as it happens, not at the end of the month
- Check SSP eligibility before making any payment
- Review your contracts annually to ensure they reflect current law
If you're unsure about a specific case — especially around holiday pay averages or long-term sickness — it's worth speaking to your accountant. Getting it wrong can be expensive, and employment tribunals can award back pay going back two years. A little time spent on this now saves a great deal of stress later.
