COMPLIANCE
Guess who’s back, back again (for the purposes of holiday entitlement) : 12.07%
Fiona Smith MCIPPdip, CIPP payroll training manager, discusses the results of the two consultations the payroll industry has been eagerly anticipating, while also reminding us how things currently stand and how to remain compliant until the proposed changes are implemented
Y es, you heard that correctly – 12.07% and accrual rates are (probably) back to stay! On 8 November 2023, the government handed payroll professionals an early winter gift: the response to a consultation held earlier this year, which considered how to ease the administrative burden of processing holiday entitlement for irregular hours (IH) and part-year (PY) workers. (https://ow.ly/ flJH50Q7NWH). This thorny problem has meant sleepless nights for many, including employers, payroll professionals, employment agencies and payroll software providers, as compliance with holiday pay and entitlement rules have never been easy. The new rules proposed would allow employers to accrue leave entitlement for PY and IH workers at a usual rate of 12.07% each pay period (or a higher rate, if contractual leave is offered above the statutory entitlement), and the ability to pay this as ‘rolled-up’ holiday pay each pay period alongside earnings. The draft legislation (https://ow.ly/TvlH50Q7PoI) also provides clarity around: l which workers could be classed as PY or IH workers, with definitions of both l which elements of pay should be included in the holiday calculation l how leave and pay should accrue during periods of sickness or statutory leave for PY or IH workers. We get our right to annual leave from a key piece of UK legislation: The Working Time Regulations (WTR) (1998). These regulations provide for two different types of statutory leave: l four weeks of leave under Regulation 13, to be paid at ‘normal pay’ l 1.6 weeks of additional leave under Regulation 13A, to be paid at ‘basic pay’.
Regulation 13 and Regulation 13A annual leave are afforded different treatments in terms of pay. Another consultation released this year explored the possibility of creating one single annual leave entitlement; however, the consultation response above stated that the two existing rates of holiday pay will be maintained (Regulation 13 and Regulation 13A). The response also provided further information regarding the pay which must be included in calculations for the four weeks of leave (at ‘normal pay’) permitted under Regulation 13A. This will hopefully make things clearer for payroll professionals as this is often cited as an area of confusion. There's a handy table to the right to help you get to grips with the proposed changes. The proposed changes to legislation aren’t set in stone, however, and they will also only be relevant for leave years beginning on or after 1 April 2024. This means that any leave for years starting before this date will need to be calculated and processed in line with the current rules. So, now is the perfect time to refresh our memories on the rules as they stand. At its core, understanding holiday pay means understanding two key areas: l holiday entitlement (i.e., how much paid time a worker can take away from work) l holiday pay (what payment is due for this time away from work). Let’s look at each of those areas in turn. Holiday entitlement On top of the statutory 5.6 weeks of leave workers are entitled to, employers are free to agree additional contractual leave, but this type of leave isn’t governed by the rules set out in the WTR. Many organisations convert this entitlement into hours or days for administrative ease. However, you must
ensure this conversion doesn’t distort the allowance and that all workers receive (and are paid for) 5.6 of their normal weeks’ rest by the end of their leave year. An example: A part-time employee working three days per week would be entitled to 3 x 5.6 = 16.8 days, or a shift worker contracted for 60 hours over a two-week pattern would be entitled to 60 / 2 = 30 x 5.6 = 168 hours. The current stance until the proposed legislation is enacted is that if a worker is employed for a full leave year (even if they don’t work in every week of the year), then they’re always entitled to a full 5.6 weeks’ paid rest within that year. The only time a worker will be entitled to less than 5.6 of their normal weeks’ paid rest is if they start or leave within the calculation year. Holiday pay The WTR themselves don’t specify how holiday pay should be calculated, just that the worker should receive their ‘normal remuneration’ for the period of leave. Instead to calculate ‘a week’s pay’ we refer to a different key piece of legislation: The Employment Rights Act (1996). The act sets out calculations for four different groups of workers: l workers with fixed pay and fixed weekly hours l workers with variable pay and fixed weekly hours l workers with variable pay and a contracted working pattern longer than one week l workers with no normal hours. The first group is the easiest to handle within payroll as they will simply continue to receive their normal pay for a week’s
| Professional in Payroll, Pensions and Reward | December 2023 - January 2024 | Issue 96 30
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