HOT TOPIC
This would lessen the issues with the flat average method and be more accurate to the 5.6 weeks of leave required by law. However, this is a huge administrative step up which would require some quick innovation from a software perspective, to make this method viable for the vast amount of businesses. What we want to move away from is the use of unsecure and complex spreadsheets or notes, which aren’t part of the core payroll system functionality. Either method does serve to remedy the potential issues with a fixed reference period. But, by using the same period to determine which hours should be used and what entitlement is given, it links these two calculations and prevents fluctuations in working patterns from negatively impacting the ability to effectively use that entitlement. Shifting working patterns do add further complexity to the average hours per specific day method, perhaps another reason this is the lesser preferred method. Calculating holiday entitlement for agency workers Finally, the consultation explores how entitlement can be calculated for agency workers. To cut a long story short, agency workers would calculate on a monthly basis, as you would for the first year of employment, moving to a yearly method should an assignment last that long. As most assignments for agency workers will be short (less than one year), there’s essentially no deviation from the standard proposed process, with the caveat that each assignment is treated separately for assessment. The tricky part of this is ensuring the data is available to make those assessments in an accurate and timely manner. What next? The CIPP’s policy team eagerly awaits the government’s response to this consultation. Members can read our consultation submission on the website in the Policy Hub. What we do want to labour, is that this isn’t a reversion to the old ways; paying 12.07% of pay as holiday pay is unlikely to achieve a compliant result. What we hope to come out of this consultation is clear and usable guidance that employers can rely on to ensure processes are compliant, without diving into the quagmire of case law that holiday pay has become. n
period in some cases could mean a lag of up to two years between the working pattern that determines your entitlement and what’s currently worked. Is there a way to combine the best of both worlds?
the consultation: ‘Would you agree that the information you currently collect to calculate holiday pay would be sufficient to calculate holiday entitlement using a reference period?’ If you’re still not collecting weekly data to enable a compliant holiday pay calculation, it’s imperative you look at processes and data collection as soon as possible. Time and attendance systems may become essential to remaining compliant in this area, as the data requirements keep increasing. Spoiler alert: the data requirements may go even further than this. This might be simple, or at least very much in your control, for those operating in- house payrolls, but outsourced and bureau environments may be very different. When there’s a break, or more than one, between the data source and those responsible for running the payroll, complexities are introduced. Delays can lead to payrolls being produced late, and late payment is an absolute no-no in our industry. For this reason, simplification of data required is key, but it seems clear that data collection for payroll processes will need to be improved for many, or employers run the risk of being non-compliant. Reference period: rolling or fixed? Should a reference period be introduced, we then need to decide what reference period we use: rolling or fixed. A fixed reference period, the government’s preferred method, would use the previous leave year as the 52 weeks required. This would allow workers to know their entitlement up front, facilitating better planning and transparency. However, if working patterns change dramatically, this could lead to entitlements that don’t reflect current conditions. A rolling reference period would use the previous 52 weeks, started when leave is taken, like how we use the reference period for pay. However, this introduces complexities with ever-changing entitlement throughout the leave year, leaving workers with uncertainty about how much leave they can take. This deviates from the current method of knowing entitlement upfront. The consultation question asks if you think the fixed reference period would be easier to administer. The policy team agree that yes, it would be easier to administer, but is it the most accurate method? A fixed
Calculations for the first year of employment
The proposed calculation for employees in the first year of employment is to use the hours in the previous month and multiply by 12.07% for a monthly entitlement in hours. This closely resembles the current process of accrual in the first year being 1/12th of yearly entitlement. As usual, employers would need to use discretion when allowing more holiday than accrued in advance. This seems like the most logical approach to calculations when data for a reference period isn’t yet available. Using a flat average working day or an average of hours per specific day? One of the big issues with irregular hours workers is how to use the entitlement they have, when days worked can vary wildly in hours. Proposed are two options: l the flat average working day, or l an average of hours per specific day. The flat average method would see average hours worked per day calculated across the reference period. This is the government’s preferred option; however, it does recognise this may create incentives for certain days to be taken as leave, either to optimise hours used or to increase pay. This could also create an incentive for employers to decline certain days for the same reasons. I did warn that the data collection would only get more in depth; this method would require not only hours per week to be captured, but also which days were worked. The average hours per specific day method would go one step further, needing not only data on which days were worked, but how many hours on each of those days. This goes way beyond the weekly totals currently required to be compliant. This method, as its name suggests, would look at how many hours were worked on specific days in the reference period. For example, Monday’s average could be 12 hours per day, but Tuesday’s average could be four hours per day. I would therefore use 12 hours of my annual allowance for requesting a Monday as annual leave, but only four for a Tuesday.
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| Professional in Payroll, Pensions and Reward |
Issue 88 | March 2023
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