Managing Leave

Important Changes to Calculating Holiday Pay.

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From 1 April 2020 the method for calculating holiday pay for some employees is changing. Here’s what you need to know.

Who is affected?

Workers in the UK are each entitled to 5.6 weeks’ paid holiday a year. For a full-time employee working a 5-day week this works out as 28 days annually. In most cases an employee will either be salaried, and therefore entitled to the same amount of pay for each week or month, regardless of time taken as holiday, or will have fixed hours each week, making it simple to work out how much they should be paid for their annual leave.

For some employees though, it can be harder to work out how much pay they should get. The two main groups affected by this are those who don’t work a fixed number of hours, such as casual or relief staff, who are often employed on zero hours contracts, as well as those who’s pay fluctuates, including many sales staff for whom commissions can make up a lot of their pay. Without a fixed amount to pay these staff, employers instead have to work out holiday pay based on an average over a number of weeks, known as the basis period. It is that basis period for those without fixed pay that is one of the biggest changes to UK paid holiday rules in several years.

What is changing?

Currently, if you need to work out holiday pay for an employee in England with no fixed hours you do this using an average of their earnings over the past 12 weeks they worked. This 12-week basis period only counts weeks in which they worked for you, however far back in time you have to go to reach that number of weeks. Under the new system, employers will have to use an average of the past 52 weeks worked by the employee, within a 2-year window.

How do I now calculate holiday pay?

For staff who are affected by this, i.e. those without a fixed number of hours or weekly pay, you need to count back through the past 2 years and add up the pay totals from the last 52 weeks in which they worked. If they have not worked 52 weeks during that time you should include all weeks they have worked. Their entitlement for holiday pay is the average of their weekly pay in those weeks.

Examples:

Alice is a relief carer, working hours that differ each week according to need. In the past 2 years (104 weeks), she has worked in 75 of them. To work out her weekly pay for holiday entitlement, the employer needs to take the average pay she received for the latest 52 weeks.

Bob is a cleaner working flexible hours. He started working for his employer 20 weeks ago. His employer should use his average earnings from the 20 weeks he has worked to calculate his holiday pay entitlement.

There are further examples and more detailed information about the rules on the UK Government’s website.

What do I need to do?

The most important thing to note if you employ staff with irregular hours or pay amounts, is that you need to maintain accurate records of how many hours they work, and how much they got paid, dating back 2 years. The chances are you already keep these records, for tax and other reasons, but you will need to know where to find them. LeaveWizard’s easy-to-use cloud based leave and absence management system makes it simple to track and calculate holiday entitlements, as well as working from home, work at different sites, and a range of other activities. Find out more by booking your free online demo here.