Holidays are here again

Employees may thank the Government for the increase in statutory holiday entitlement that was introduced this month, but it certainly poses a few problems for retailers in terms of wage costs. And the worst is yet to come.

Having increased by four days to 24 a year on October 1, entitlement will rise by another four days to 28 in April 2009, affecting companies of all sizes.

The Government estimates that the changes will cost employers between£3.3 billion and£4.4 billion in wages alone. According to the same estimates, the retail sector accounts for 22 per cent of workers with low holiday entitlement – about 1 million people.

As many as 29 per cent of employees in retail do not receive 28 days’ annual leave including bank holidays, making the industry the lowest leave provider after hospitality and catering. Furthermore, retailers will always need shopfloor workers, so companies will have to bear the brunt of extra staffing costs.

The changes to the law mean that statutory holiday entitlement is now equivalent to 4.8 weeks, inclusive of eight bank holidays and will rise to the equivalent of 5.6 weeks in April 2009. Part-time workers will have their holiday entitlement allocated on a pro-rata basis.

Simple though it sounds, there is sufficient scope for confusion in an industry that employs so many flexible staff and operates outside of traditional office hours. Making changes to computer software, recalculating employees’ holiday entitlement and informing those affected by the change all costs money. The Government forecasts transitional costs to total£140 million, with£43 million accounting for continuing administrative costs.

Field Fisher Waterhouse solicitor Nick Thorpe says: “The cost factor is important, although it is hard to quantify. A lot of that will be borne by the retail sector, at a time when all other costs are rising – minimum wage, rent, utilities and so on.”

The increase this month is unlikely to affect many employers, but those who will be hit by the second rise in April 2009 need to prepare now.

Boodle Hatfield partner and head of employment Karen Black says: “You might have had quite a casual system, but now you’ve got more people asking for more holidays and the possibility of staff shortages, and you’re more likely to get more staff wanting to use holiday over Christmas.”

Black advises using the change as an opportunity to tighten holiday procedures. “You could introduce rules, such as: ‘It’s not possible to take all your holiday at once’.”

TAKING CONTROL
Thorpe believes it is important for retailers to recognise and utilise the power they have as employers. He says that requiring staff to take holiday on specific days when stores are prohibited from opening, such as Easter, could be one way to minimise the impact. Or, they could amend overtime rules so that staff receive less or no overtime pay for working on a bank holiday, on the basis that they will be entitled to additional holiday reflecting bank holidays.

Ironically, it could be efficient businesses that suffer most. Thorpe says that retailers with a streamlined shopfloor operation could be the worst affected. “Because of the way they operate, they have a smaller shopfloor workforce and will, therefore, be affected more by staff shortages.”

Black also points out that companies with a US heritage could be worse affected by the increase in holiday entitlement, because in the States holiday entitlement is lower and the work ethic is different. She also believes the new ruling could be a turn-off for US investors. “Gap, for instance, is less generous than Marks & Spencer because of the heritage of the US work ethic, so it will vary from company to company. I’d be interested to see what Abercrombie & Fitch do.”

However, there is a positive spin that retailers can put on the situation. Black says: “The best thing is to inform staff and make a real plus out of it, even if it is compulsory. It’s a good chance to incentivise staff – make something of it.”

Retailers may have no choice about whether they implement the changes or not, but there are ways to minimise disruption. As always, the best results will be achieved by those who confront the problem.

CUT THE CONFUSION

How do you calculate the holiday entitlement for someone who works regular shifts?
It is easier to calculate holiday as shifts. So if an employee works four 12-hour shifts, followed by four days off, the average working week is 3.5 12-hour shifts (number of shifts divided by the number of days they are worked over, multiplied by seven days). So 4.8 weeks’ holiday is 4.8 x 3.5 = 16.8 12-hour shifts.

How do you calculate the additional entitlement for someone who works term-time only?
You need to calculate the average hours a week they have worked over the whole year. So, if they work 40 hours a week for 40 weeks of the year, they have worked a total of 1,600 hours a year, or 33 hours a week over 48 weeks of the year term time. The holiday entitlement is 33 hours a week x 4.8 weeks = 158.4 hours’ holiday for the year.

How do you calculate holiday entitlement for someone who works casual or very irregular hours?
It may be easiest to calculate the holiday entitlement that accrues as hours are worked. The holiday entitlement for 4.8 weeks is equivalent to 10.2 per cent of hours worked. So, if someone has worked 10 hours, they are entitled to 61 minutes’ holiday (10 hours x 60 minutes x 0.102). The holiday entitlement is just over six minutes for each hour worked.

How do you calculate the holiday entitlement for someone who works a six-day week?
Although 4.8 weeks equates to 28.8 days for someone working a six-day week, the maximum entitlement is 28 days.

Does the additional holiday entitlement extend to agency workers?
Yes. All workers covered by Working Time Regulations are entitled to the increase in holiday entitlement.

Can payment be given in lieu of the additional holiday?
Yes, until April 1, 2009 as long as worker and employer agree. Four weeks’ leave must still be taken as holiday each leave year. For statutory leave entitlement accrued after April 1, 2009, payment in lieu will not be permitted (although payment in lieu of any leave above the statutory entitlement could be allowed, depending on the contract of employment).

Do employers need to amend contracts of employment?
No. Because this is a change, in terms of employment, that benefits employees, employers do not need to reissue contracts, but they need to inform staff, in writing, of the increased holiday entitlement.

Source: Department for Business Enterprise and Regulatory Reform