Compliance
The CIPP’s policy and research team explores one of themost intricate areas of payroll Holiday pay and entitlement
H oliday pay can be one of the most complex areas for payroll professionals to process and administer. The make-up of pay is increasingly complex, with zero hours, variable pay, salaried, commission-based
and a wide variety of other arrangements, so it’s easy to see why calculating pay for time off is a challenge. In this issue, we explore some of the statutory rules for holiday pay and holiday entitlement. Many organisations also Holiday pay ● holiday pay must be paid when the holiday is taken. An employer cannot include an amount for holiday pay within a worker’s hourly rate instead of providing time off. This is referred to as ‘rolled-up holiday pay’
operate their own holiday entitlement schemes, above and beyond the statutory minimums. This article will focus on the statutory elements only. Read on to find out more about this complex area of payroll...
● the only time someone can get paid instead of taking holiday is when they leave their job, and have holiday entitlement left ● workers and employees can take a week’s pay for each week of statutory leave they take. This is calculated based on the kind of hours they work and how they’re paid for those hours: ❍ if someone has fixed hours and pay (full or part-time), they receive their pay for a week ❍ if someone has fixed hours, but their rate of pay varies (for example, it includes commission or piece work), they receive their average hourly rate of pay from the previous 52 weeks multiplied by their fixed hours ❍ if someone has variable hours and variable pay (for example, workers that do regular overtime), they receive their average hourly rate of pay multiplied by the average number of hours they have worked per week, calculated on the last 52 weeks before the holiday ❍ if someone has no fixed hours (casual work, including zero-hours contracts), the average pay from the previous 52 weeks is used for the calculation. The 52-week calculation For workers with variable hours or pay, employers must calculate holiday pay using the 52- week average calculation. From 6 April 2020, the holiday pay reference period was extended from 12 weeks to 52 weeks. Employers need to look back at the previous 52 weeks of hours and pay, add them together and then divide by 52 to get the average figure for calculating a week’s pay. Where a worker doesn’t have 52 weeks’ worth of information (if, for example, they haven’t worked for the employer for that long), you’d add the number of weeks available up and then divide by the number of weeks used. The reference period should only include weeks for which a worker was actually paid. For most workers this only includes pay for work they did and mustn’t include weeks where they didn’t work. Calculations for workers with no fixed hours should include all weeks where the worker was paid, even if this was a payment for absence. This may mean that there may be a requirement to look back further than 52 weeks. There’s a cap on how far back the reference period can go, and that’s up to 104 weeks.
Holiday entitlement ● European Union law states all workers must receive four weeks’ leave ● UK law states all workers must receive 5.6 weeks’ leave, including bank holidays ● holiday entitlement is due from the worker or employee’s start date and can be pro-rated in the year of starting or leaving ● workers continue to build holiday entitlement during periods of statutory parental leave or when off work sick ● employers can offer to provide more holiday entitlement than the statutory minimum ● bank or public holidays don’t have to be given as paid leave, and the employer can ask that a worker takes time off on a different day ● the holiday entitlement calculator can be located here: http://ow.ly/ jEN430sbAH9 ● almost all workers are legally entitled to 5.6 weeks’ paid holiday per year, including: ❍ agency workers ❍ workers with irregular hours ❍ workers on zero-hours contracts.
Training course: The CIPP offers a comprehensive half-day course on holiday pay and entitlement. It discusses case law around the subject and discusses various types of leave and the calculation of pay. You can book to join the course online here: http://ow.ly/VGpF30sbqcY.
Use your voice: How do you manage the 52-week calculation method in your organisation for workers who receive variable pay? Do you have any tips on calculating holiday pay and entitlement that could help others? Email the policy team, at policy@cipp.org.uk .
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| Professional in Payroll, Pensions and Reward |
Issue 79 | April 2022
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