Holiday Pay and Sick Pay: What You Owe Staff

Once you take someone on as an employee, a set of legal minimums applies from day one — paid holiday, a written statement of terms, the National Minimum Wage, statutory sick pay when they qualify, and a workplace pension once they meet the criteria. None of it is optional, none of it depends on the size of your firm, and “we’re only two vans” is not a defence. The good news is that the list is short and, once it is set up properly, it mostly runs itself.

The day-one rights

The moment an employee starts, they are entitled to a written statement of their main terms of employment. That means the job title, start date, pay, hours, holiday entitlement, place of work and notice period, in writing, on or before their first day. It is not the same as a full contract, but most small firms find it easier to issue a proper contract that covers the statutory points and a few extras — a probation period, a clause about tools and van use, and something sensible about behaviour on customers’ property.

Alongside that, they get the National Minimum Wage or National Living Wage for their age band, statutory paid holiday, and protection from unlawful deduction from wages. Apprentices have their own minimum rate for the first year, which changes once they turn 19 and pass a year of the apprenticeship. Rates change every April, so check the current figures on gov.uk before you set anyone’s pay — do not work from last year’s number.

Holiday entitlement: the bit everyone gets wrong

The statutory minimum is 5.6 weeks of paid holiday a year. For someone working a standard five-day week, that is 28 days. You can count bank holidays towards the 28 if the contract says so, and most trade firms do, because the business tends to shut for them anyway. What you cannot do is give fewer than 5.6 weeks in total.

Part-time staff get the same 5.6 weeks, pro rata. Someone working three days a week gets 16.8 days, which you can round up to 17 to keep your own arithmetic simple.

Irregular hours and part-year workers

This is where trade firms get caught. If you have a labourer on irregular hours, or someone who only works part of the year, the old habit of paying 12.07% of hours worked as rolled-up holiday pay was, for a period, not lawful — and the rules have since been changed again to permit an accrual method for irregular-hours and part-year workers, with rolled-up holiday pay allowed for those specific workers if it is clearly identified on the payslip.

The practical point is this: the treatment depends on whether the worker genuinely has irregular hours or is simply a part-timer with a fixed pattern, and the two are handled differently. If you have anyone on variable hours, get the calculation checked once by an accountant or HR adviser and then reuse the method. It is a cheap conversation compared with a tribunal claim for underpaid holiday going back years.

Holiday pay is paid at normal pay

Holiday must be paid at the employee’s normal rate of pay, not basic pay stripped of everything else. If someone regularly earns overtime, commission or a productivity bonus, that regular element generally has to be reflected in their holiday pay, calculated over a reference period of their recent paid weeks. Paying a flat basic day rate for holiday when the employee normally earns more is one of the most common underpayments in small firms.

Statutory Sick Pay

Statutory Sick Pay is a weekly amount you pay an employee who is off sick, provided they earn at least the lower earnings limit and are off for the qualifying period. It is paid through payroll like normal wages, with tax and National Insurance deducted, and it runs for a maximum number of weeks per period of sickness.

The rate and the qualifying thresholds are set by government and change each April, so look them up on gov.uk rather than relying on a figure someone quoted you. As the employer, you cannot reclaim SSP from HMRC — the small employer reclaim scheme was abolished years ago, so budget for it as a real cost.

Employees can self-certify for the first seven calendar days. After that you can ask for a fit note from a GP or other healthcare professional. Keep it proportionate: chasing paperwork on day eight of a bad back does not help anyone, but you do need a record.

Contractual sick pay

You are free to offer more than SSP — some firms pay full pay for a couple of weeks — but whatever you offer becomes contractual once it is in writing or established by custom. Think about affordability before you promise it, because withdrawing it later is far harder than never offering it.

Pensions: automatic enrolment

If you have at least one employee, you have automatic enrolment duties. You must assess each member of staff, enrol those who qualify into a workplace pension scheme, pay the minimum employer contribution, and complete a declaration of compliance with The Pensions Regulator. Staff can opt out afterwards, but you must not encourage or induce them to.

Most payroll software handles the assessment and contribution calculation once it is set up. The part small firms miss is the re-enrolment cycle: every three years you have to put eligible staff who opted out back into the scheme and file another declaration.

Other rights worth knowing about

Notice. Statutory minimum notice is one week after a month’s service, rising with length of service. Your contract can require more from either side.

Rest breaks. An uninterrupted rest break during a working day over six hours, plus daily and weekly rest periods.

Family leave. Maternity, paternity, adoption and shared parental leave and pay all apply to small firms. Statutory payments can usually be recovered from HMRC through payroll, with an extra percentage for small employers.

Unfair dismissal and redundancy. Eligibility for ordinary unfair dismissal claims depends on length of service, but claims linked to discrimination, whistleblowing or asserting a statutory right apply from day one. Never assume a short-service employee can be dismissed without care.

Itemised payslips. Every employee gets one, showing gross pay, deductions and net pay.

The records to keep

Keep it simple and keep it consistent:

Signed contract or written statement of terms for every employee

A holiday record showing entitlement, days taken and days remaining

A sickness record with dates, self-certification and any fit notes

Payroll records and payslips, retained for the period HMRC requires

Pension assessment output and your declaration of compliance

Working time records where relevant, particularly for anyone near the weekly limit

A spreadsheet and a folder is enough for two or three staff. Beyond that, cheap payroll or HR software that tracks holiday and absence pays for itself in arguments avoided.

What it costs you in practice

Budget for an employee costing meaningfully more than their gross wage. On top of pay you have employer National Insurance, the employer pension contribution, holiday pay for 5.6 weeks of the year when nobody is producing revenue, employer’s liability insurance, and the sick pay you cannot reclaim. Work that out before you quote a year of work on the assumption a new employee is charged out at full rate for 52 weeks, because they are not.

Getting the work in to pay for them

Taking on staff only works if the diary is full enough to keep them busy. Trade Pilot is free to join and only charges when a real local job lands in your inbox — you buy lead credits and spend them on the jobs you actually want. Each lead goes to no more than three trades in the area, so you are quoting against two others rather than a queue, and reviews are tied to verified invoices. A quiet fortnight costs you nothing in lead fees, which matters a great deal more once you have a wage bill to meet.

FAQ

Do I have to give 28 days holiday if my employee works four days a week? No. The entitlement is 5.6 weeks, so a four-day-a-week employee gets 22.4 days. You can round up, but you cannot round down.

Can I pay someone instead of letting them take holiday? Only on termination of employment. While someone is employed, statutory holiday has to be taken as time off, not bought out.

Do I pay sick pay from the first day off? Not for Statutory Sick Pay — there are qualifying days before it starts. Check the current rules on gov.uk, and remember your own contractual sick pay scheme, if you have one, can be more generous.

Does a self-employed subcontractor get holiday or sick pay? A genuinely self-employed subcontractor does not. But employment status is decided by how the relationship actually works, not by what the paperwork calls it — if someone works set hours under your control with your materials and cannot send a substitute, they may be a worker or employee regardless of the label, with the rights that go with it.

What if I get the holiday pay calculation wrong? Underpaid holiday can be claimed as an unlawful deduction from wages, and claims can cover a series of deductions. Fix it as soon as you spot it and take advice on back pay rather than hoping it goes unnoticed.

Do these rules apply if I only have one employee? Yes. There is no small-employer exemption from holiday, sick pay, minimum wage or auto-enrolment.

Related reading: payroll for your first employee · subcontractor vs employee · employers' liability insurance · tradesman salaries in the UK