We just look at it as after the employee has worked a day after all expenses you have a minimum amount of money left.
We worked it backwards, so we costed an employee over 1 year added all the extras on so extra insurances, uniform, holidays, employers NI, extra equipment etc etc then added on what we want to get out of him working. after all the reason we employee is to make more money. Then break it down into workable days, so we aimed for 16 days per 4 weeks. You need to hit this figure as an average every month.
If you cant hit this figure over a month then its probably not worth employing.
Our lad is now probably making us about £1600 a month after all the above deductions and we're not even working 16 days a month!
I happily pay him holiday, infact the sooner he has them the better it feels for me i then know no more paid time off :-)
The sensible thing to do is bank some cash every month so when hes on holiday the money is there to pay him, otherwise when you work the week hes on holiday and have to pay him out of what you earnt and feel like you have it hard as it came out of what you earnt .