All individuals categorized as workers hold a legal right to annual leave, and employers must accurately calculate the time their employees are entitled to. This obligation applies to the following categories:
- full-time workers,
- part-time workers,
- agency workers,
- shift workers,
- workers on zero-hours contracts.
However, even if you apply the same time off accrual rates to part-time and full-time employees, their annual leave balances will drastically differ. The same can be said about employees who joined you halfway through the year – they won’t receive as much time off as those who worked for an entire business year.
So, how do you figure out how much time off each team member is entitled to? That’s when pro -rata leave comes into play. Pro-rata leave is a concept that ensures fair allocation of annual leave entitlement for employees who join or leave an organization mid-year.
It allows employers and employees to calculate and adjust leave entitlement based on the duration of employment within a specific leave year.
This post will equip you with all the information you need to calculate annual leave entitlement and navigate corresponding legal requirements in various employment scenarios.
Understanding Pro Rata Leave
The word “pro rata” is of Latin origin, and it can be translated as “in proportion” or “according to the calculated share.”
In line with this definition, pro-rata leave refers to the proportional allocation of annual leave based on an employee’s period of employment during a particular leave year. It ensures that employees are granted a fair amount of leave based on their time working for the company.
Legitimate reasons for implementing pro-rata adjustments to annual leave entitlement include:
Benefits of Pro-Rata Leave
Pro rata leave offers several benefits for both employers and employees:
- Fairness and equity. Pro rata leave ensures that employees are treated fairly, regardless of when they join or leave the organization within a leave year.
- Employee retention and satisfaction. Employees feel valued and motivated by providing a proportional amount of leave, leading to increased job satisfaction and potentially higher retention rates.
- Cost savings. Employers can avoid overpaying for unused annual leave by calculating pro rata entitlements accurately, which can result in cost savings for the company.
- Compliance with labor laws. Adhering to pro rata leave calculations ensures compliance with labor laws and regulations related to annual leave entitlement.
How to Calculate Pro-Rata Leave
In general, pro-rata leave is calculated based on the accrual rate adopted in your company and the number of days or hours a team member spends on their job (as compared to full-time employees).
For instance, if a person works merely 20 hours a week instead of the standard 40, they will receive half as many days off as your full-time workers.
Yet, before calculating any leave time, you need to explore your local laws and figure out how much leave time you have to give to different types of employees.
Legislation Regulating Pro-Rata Leave
In Europe, the legislation regulating pro-rata leave varies among different countries, as it is primarily governed by national laws. However, certain overarching regulations apply to all European Union member states.
The Working Time Directive (2003/88/EC) sets minimum standards for working time and annual leave entitlement across the EU. It stipulates that workers are entitled to at least four weeks (or 20 days) of paid annual leave annually.
In the United States, there is no federal law mandating paid annual leave for workers. The Fair Labor Standards Act (FLSA) only requires employers to provide unpaid leave under certain circumstances, such as through the Family and Medical Leave Act (FMLA). Paid leave policies are typically determined by individual employers or state-specific regulations.
The legislation governing pro-rata leave in the United Kingdom is primarily outlined in the Working Time Regulations 1998. It implements the requirements of the EU Working Time Directive and provides workers with a minimum of 5.6 weeks (or 28 days) of paid annual leave per year, regardless of full-time or part-time status. The entitlement is pro-rated for part-time workers based on their contracted hours.
Now that you are aware of the mandatory minimum entitlement, proceed as follows:
Step 1: Determine the Total Annual Leave Entitlement
Start by identifying the total number of days an employee is entitled to in a full year. This can vary depending on company policies and local labor laws. For example, let’s assume the total annual leave entitlement is 20 days.
Step 2: Determine the Period of Employment
Calculate the days the employee has worked or will work during the leave year. This can be based on the start and end dates of employment or any specific period you want to consider.
Step 3: Calculate the Pro-Rata Entitlement
Divide the number of days worked by the total number of working days in a year, then multiply it by the total annual leave entitlement. This will give you the pro-rata leave entitlement for the employee.
For example, if there are 260 working days in a year, the calculation would be (180 days / 260 days) * 20 days = 13.85 days.
Step 4: Round the Pro-Rata Entitlement
Depending on your company policy or local regulations, you may need to round off the pro rata entitlement to the nearest whole number or follow specific rounding rules. In our example, we rounded it off to 14 days.
Step 5: Communicate the Pro-Rata Entitlement
Inform the employee about their pro rata leave entitlement based on their period of employment. Provide clear information about how the entitlement was calculated and any specific applicable rules or limitations.
Calculating Pro-Rata Leave for Different Employment Scenarios
The general guidance above works in most situations, but the actual calculations may vary depending on the circumstances. Let’s take a closer look.
Pro-Rata Leave for Part-Time Employees
Your approach to calculating pro rata leave for part-time employees will depend on whether they adhere to a fixed schedule or work irregular hours.
Suppose your full-time employees receive 5.6 weeks off a year. In this case, if a part-time employee works 2.5 days (20 hours) every week, their annual pro rata leave will equate to 14 days (112 hours):
And what about those who work irregular hours?
Their annual time off entitlement can be calculated like this:
- Determine how many days / hours an employee spends on work each week.
- Sum up these figures and divide the result by 52 (the number of weeks in a year).
- Lastly, multiply the obtained average number by the annual time off rate of 5.6 weeks.
Pro-Rata Leave for Those Hired Partway Through the Year
There are three main things to take into account when calculating pro rata leave for someone who joins your team part time through the year:
- Their hire date
- The start of the leave year in your company
- The number of days / hours an employee works a week
For example, if a full-time employee joins the team on May 1, while the leave year in your company begins on January 1, they will be entitled to merely 8 months of time off instead of 12 (i.e., 2 / 3 of the entire year). And provided that all full-time employees in your organization are granted 28 days off a year, a person who was hired on May 1 will receive 18.6 days off:
Pro Rata Leave for Those Quitting Their Jobs in the Midst of the Year
The same proration principle applies to employees who want to leave your company part way through the year:
- You first need to define which portion of the year they were employed.
- And after that, you can proceed to calculate their earned pro rata vacation based on the relevant accrual rate for the full year of employment.
For example:
If a part-time employee quits their job on October 31, and the leave year in your company starts on January 1, you need to compensate them for 10 months of time off instead of 12 (i.e, 5 / 6 of the leave year).
If that employee always worked 2.5 days a week and was entitled to 14 days off for a full year, they will receive 11.7 days off for the 10 months of work:
Pro-Rata Leave for Zero-Hours Contract Employees
For zero-hours contract employees, annual leave entitlement is calculated based on the hours worked. This can be done by determining the average hours worked per week or month over a reference period.
Once the average hours are calculated, the employee’s annual leave entitlement is pro-rated accordingly.
For example, a full-time employee is entitled to 5.6 weeks of paid holiday annually. He has been working for his organization for 12 weeks, during which he has accumulated 125 hours.
To calculate their holiday entitlement based on the hours worked so far, we can follow these steps:
- Calculate the average number of hours worked per week.
- Determine the annual holiday entitlement based on the average hours worked.
- Calculate the weekly accrual rate.
- Determine the holiday leave accrued over the twelve weeks worked.
Pro-Rata Leave for Shift Workers
Shift workers often have varying work schedules, making calculating annual leave entitlement more complex. In this case, the average number of hours worked per week over a reference period is typically used to calculate entitlement.
If a shift worker’s hours vary significantly from week to week, it may be necessary to use a longer reference period to calculate a more accurate average.
Pro-Rata Leave for Part-Year Workers
Term-time or part-year workers have specific periods during which they work, such as school terms or seasonal employment. Their annual leave entitlement is usually calculated based on the proportion of the year they work.
For example, if a term-time worker only works during school terms, their annual leave entitlement would be pro-rated based on the percentage of the year they are employed.
Pro-Rata Leave FAQ
Q: How to prorate leave for employees who change their hours part-way through the annual leave year?
A: If an employee changes their hours partway through the annual leave year, an additional pro-rata calculation is needed to determine the accrued entitlements based on the year’s proportions.
For instance, if the change happens halfway through the year, initial and adjusted annual leave amounts must be prorated for six months each and then added together.
Q: How to prorate leave for employees working variable hours?
A: If your employee works variable hours and you know the hours per week or month they will work, you simply need to ensure that your holiday calculation is done in hours rather than days.
Their annual leave differs for casual or zero-hour workers as they can opt not to work.
Nevertheless, they are still entitled to holiday pay, which should be calculated based on their average pay over a 52-week reference period (not necessarily 52 consecutive weeks).
Q: How are untaken holidays paid for?
A: Employees who leave partway through the year may be entitled to payment for untaken holidays. Employers are required to compensate for untaken statutory leave for employees.
During a notice period, employees might be able to take what remains of their annual leave or receive payment in lieu of an untaken holiday.
If they have already taken more leave than they have left for the year, they may have money deducted from the final paycheck, subject to prior agreement in writing.
Q: How do you prorate bank holidays for part-time workers?
Legally, part-time workers should not be treated differently from full-time workers. Many employers provide part-time workers with all bank and public holidays as paid time off.
Alternatively, the bank holiday entitlement for part-time workers can be calculated as 5.6 times your usual working week.
Accurate Time Off Accrual Is Vital for Your Business
When performed correctly, the leave accrual process helps you better comply with local labor laws, reduce business costs and improve employee satisfaction. Hence, it’s very important to calculate employees’ time off balances without mistakes and monitor how everyone uses their earned vacations throughout the year.
A high-quality software tool like actiPLANS makes it easier for you to succeed with these tasks. It allows users to set bespoke leave accrual rules for every employee, calculate their time off balances automatically and manage leave requests in an effortless way.
Try out actiPLANS for free during a 30-day online trial and forget about manual leave calculations for good!
