5 things you should know about the changes to holiday pay calculations
Employers could be caught out by changes to how holiday is calculated. Those with staff who work variable hours are particularly at risk. We look at what you can do to make sure your holiday pay calculations are accurate.
The changes are being introduced so that holiday pay is a better reflection of the seasonal nature of casual, variable and zero hours work.
The intention is that this longer reference period will better reflect the pay of those workers whose hours fluctuate significantly over the course of the year such as casual or seasonal workers.
Currently, the amount of holiday pay due to an employee is calculated based on a 12-week reference period. From April 2020, this reference period will be extended from 12 weeks to 52 weeks, making the pay calculation more complex.
First of all, if your payroll is managed by WMT, you have nothing to worry about. Our payroll team follow best practice for pay calculations, so we already work to the 52-week pay reference period.
If you have an in-house payroll team or use another payroll service, you will want to make sure they can answer the following questions.
Which workers does it apply to?
The 52-week pay reference period will only apply to workers you have employed for at least 52 weeks. Staff employed with you for less than 52 weeks will have a holiday pay reference period equal to the number of whole weeks in which they have worked and been paid.
Is your payroll or rota management system up to the job?
Your system must able to identify which pay reference period applies for each worker on any given date so the right holiday pay can be calculated.
Which weeks count?
Only the weeks in which a staff member worked and received pay count towards the 52-week reference period. Pay does not include sick pay, maternity/paternity pay, or similar payments made because a person is unable to work. Weeks that a worker did not work or receive pay must be excluded.
How far should you go back?
To identify up to 52 weeks in which a worker has been paid, you may have to count back from up to 104 weeks from the beginning of the period of leave. The Regulations set a cap at 104 weeks so there is no need to count back any further than that.
What if a worker doesn’t have 52 weeks of pay?
Where a worker has less than 52 weeks, use as many whole weeks of pay as are available (a week starts on a Sunday and ends on a Saturday, for these purposes).
For help and advice on calculating holiday pay and professional payroll management, get in touch with Susan Elsdon.