Holiday Pay Changes: Is Your Organisation Ready?
Changes coming into force on 6th April 2020 alter the way that holiday pay is calculated for employees without fixed hours or pay
The Government is introducing changes as of 6th April 2020 designed to make it fairer for workers with variable hours when calculating holiday pay.
All workers, unless self-employed, are currently entitled to 5.6 weeks paid holiday every year as part of the 1998 Working Time Regulations. The principle is that the amount of pay a worker receives for this holiday period reflects what they would have earned should they have been working.
For full time workers, with fixed pay rates and working hours (and therefore a fixed monthly salary), holiday pay rates should be easy to calculate; they should receive the same pay every month regardless of any leave taken. For workers without fixed hours however, calculating holiday pay becomes more complex, since wages vary across different periods of time. For these staff, the amount of pay received during the previous 12 weeks (including contractually obliged overtime) is used to calculate a corresponding rate. This is known as the holiday pay reference period.
As of 6th April 2020, this holiday pay reference period is increasing to 52 weeks. This is in an effort to make holiday pay fairer for workers with variable pay, in particular those with seasonable work for whom the last 12 working weeks can be an unfair reflection of their overall working situation.
Should a worker have been employed for less than 52 weeks, an employer should instead use the maximum available number of completed weeks of employment as a reference period. In the instance where a worker takes leave before being employed for a whole week, employers should instead pay an amount which fairly reflects the employee's pay for the amount of time they are on leave for. This would take into account the staff member's pay, pay already received and a comparable pay rate for other workers doing the same job either for that organisation or for others.
The Department for Business, Energy & Industrial Strategy has published full guidance for the changes in holiday pay. All employers need to ensure they have adapted to these new regulations by the starting date of 6th April, and have trained all payroll employees.
Updated regulations such as this can cause a lot of additional work within your organisation, especially if calculations like these are done manually. Bodet’s Time & Attendance System automatically calculates holiday pay rates for you where possible, providing an export which can be transferred into your payroll system. This saves you time with HR administration, and ensures that mistakes aren’t made when introducing changes. Our solution also allows you to differentiate between contractually obliged overtime and voluntary overtime, further assisting your holiday pay calculations.
For a free onsite demonstration to see how Bodet’s Time & Attendance Solutions can be used to calculate holiday pay and provide an export which can be transferred into your payroll system, please contact us.