How to Accrue Holiday & Sick Leave Entitlements
Article ID: 2024661 Last updated: 22 January 2016
AccountEdge Plus allows you to automatically accrue holidays and/or sick leave entitlements for your employees paid on an hourly basis. This function accrues hours of leave entitlement to employees each time a paycheque is recorded, or can be set to accrue an entitlement over a period of time. The total year to date accrued entitlement can then be reduced by any holiday/sick hours paid.
For each type of accrued entitlement (holiday, sickness, etc.) you will need to setup two related Payroll Categories:
- An Entitlement category which calculates the number of hours an employee accrues from pay period to pay period.
- A Wage category which is used to pay an employee when leave is taken and which reduces the balance of accrued entitlement hours.
Assumptions: This support note's examples are based on the following:
- Employees are entitled to 20 days holiday per year.
- Employee 'Bertie Smith' is paid hourly, on a monthly basis.
- The accrued holiday entitlement will be reduced by holiday paid to the employee.
Your own circumstances may vary but the principals remain the same.
Step 1: Setup Payroll Categories for Holiday Payments and Holiday Entitlements
1. Setup a Wage category called Holiday Pay:
From the Payroll menu, select Payroll Categories and select the Wages tab.
Click the New button towards the bottom of the window. A 'Wages Information' window will appear, similar to below.
The Type of Wages must be set to Hourly, regardless whether your employees are salaried or hourly paid.
Select the Pay Rate appropriate to your employees; this is usually set to Regular Rate Multiplied by 1.0000 so that the employee is paid their regular rate when on holiday.
If you wish to show holiday pay in your Accounts List (nominal ledger) separately from normal wages, you can tick to override the default Employees' Wage Expense Account with another expense account of your choice.
At the bottom of the window, click the Employee button to select the employees that will be able to receive this wage category. Click OK when you finished.
2. Setup an Entitlement category called Holiday Entitlement:
From the Payroll Category List, select the Entitlements tab.
If a Holiday Entitlement category is not present, click the New button towards the bottom of the window.
If a Holiday Entitlement category is already present, click the white 'zoom' arrow to open the category.
Select how you want to calculate the entitlement per period. Your choices are:
- User Entered Amount per Pay Period Enables you to manually enter the entitled number of hours within each employee paycheque at payroll run time (or from the employee's Recurring Pay window).
- Equals x% Percent of 'a Wages Category' This option allows you to set the entitlement as a percentage of the number of hours of any wage category. It can only be used with employees who have an Hourly Base Pay (entered in the Payroll Details tab view of their card). To calculate the appropriate percentage, use the following formula: [Hours accrued per year/Hours worked per year] x 100. For example, if your employees work 40 hours a week (8 hours x 5 days) and accrue 20 days holiday leave each year (160 hours), the percentage is calculated as: [160 / (40 × 52)] x 100 = 7.6923%
- Equals x Hours per Pay Period/Month/Year. This option allows you to specify a fixed number of hours to be accrued each pay period, month or year, regardless of the hours worked by the employee. If you have set your employees to be paid on a salary basis rather than on an hourly basis, this is the only option that will automatically accrue hours. Tip: If you wish you can accrue hours or days here, despite the window requesting 'hours'. If you accrue hours, then pay the holiday in hours. If you accrue by days, then pay the holiday in days. For example, an employee with 21 days entitlement per full year would accrue 1.75 days per month, or 14 hours (based on 8 hours per day), depending on your preference to use days or hours.
There are 2 more optional selections that can be made: Print on Payslips and Carry Remaining Leave Over to Next Year.
Now use the Linked Wages Category field to choose the wage category which will reduce this entitlement when paid. In this case we will use the Holiday Pay wage category created in point 1, above. When you pay an employee using this wage category, the number of hours (or days) you enter for the wage will be subtracted from the number of hours the employee has accrued in the year.
Finally click the Employee button and select the employees that you wish to receive this entitlement. Click OK when you finished.
Step 2: Pay your employees
When processing your employees pay, open the employee's payment window (shown below) to see the contents of their paycheque. You will see your new 'Holiday Pay' wage category and 'Holiday Leave Accrual' entitlement appear in the list of categories. Depending on the setup of your categories and employees, the entitlement accrual may already be populated. If you wish to pay the employee some holiday pay, type in the total number of hours (or days) that are being taken for the period.
In the example above, we have reduced the employee's monthly Base Hours from 162.5 to 155 hours, and entered 7.5 hours of Holiday Pay (one day). This gives the employee their full 162.5 gross hours for the period. The full 162.5 hours are then used then used to automatically calculate 12.5 hours of Holiday Entitlement (Accrual) for the period.
When the paycheque is recorded, the 7.5 hours of Holiday Pay will be deducted from the 12.5 hours of Holiday Entitlement Accrual to leave this employee with a net increase to their year to date Holiday Entitlement of 5 hours. If the employee had taken no holiday during the period, the full 12.5 hours of Holiday Entitlement would have been added to their Holiday Entitlement (Accrued) for the year.
Step 3: View the employee's Entitlement Details and Balances
You can see the status of your employee's Entitlements by going to the Card File menu, Card List and opening the employee's card. Go to the Payroll Details tab and into the Entitlements section, example below:
The Total column indicates the current Entitlement Balance for the employee and takes into account all the hours (or days) of Holiday Entitlement accrued for the year minus all the hours (or days) of Holiday Pay paid.
Here you can see that Bertie Smith has a current Total holiday entitlement of 5 hours. (Per the example in Step 2, he accrued 12.5 hours of holiday in his first month's pay of the year, but took 7.5 hours holiday pay in the same month.)
Entitlement Summary and Entitlement Detail reports are also available from the Index to Reports> Payroll> Entitlements area.
Note: All the above examples are a guide only and you should setup the accrual of entitlements as per your company's employment terms and conditions.
Disclaimer: This information is of a generic nature. For specific advice regarding your particular circumstances please seek assistance from your Accountant, HMRC or your IT Consultant as appropriate.