Filling the GAP in HR services: Holiday pay calculation charges
An important change is coming to the holiday pay reference period, and it’s going to be used to calculate holiday pay entitlement for employees and workers.
Until now, average weekly pay for holiday pay purposes has been calculated using a twelve-week reference period.
Only those weeks where monies have actually been earned are counted; weeks of annual leave, sickness absence or nil earnings are not included in the calculation. Neither are those where an individual has been in receipt of statutory payments such as paternity pay.
This means that you have to count backwards until the individual has twelve successful weeks of earnings.
In early 2019 the government stated that this twelve-week reference period punished those who work irregular and fluctuating weekly hours because they would receive less holiday pay after quieter times.
The government passed the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 which come into force on 6 April 2020.
These Regulations increase the holiday pay reference period to 52 weeks.
From that date, holiday pay will need to be calculated on average hours worked over 52 weeks.
Weeks are not included in the calculation if they are:
- annual leave
- sickness absence
- nil earnings, or
- statutory payments such as paternity pay.
If they have been working for you for longer than 52 weeks but there are weeks with nil earnings, you are expected to go back up to a maximum of 104 weeks to find your 52 weeks of pay reference period.
For new hires who haven’t worked 52 weeks, you should base your holiday pay calculations on the number of pay weeks which are available.
Do not leave changes to the calculation of the new pay reference period until the last minute.
Start collecting the data now and make sure you are recording all overtime worked (it also must be included in this calculation).
If you are a client of ours, we can provide you with the calculation that you should be using, so hit reply if you want to work it out!