COMPLIANCE
November 2021 and the judgment was handed down in July 2022, confirming that the CA was correct to hold that the calendar week method represents the correct implementation of the Working Time Regulations and that this is fully compliant with European Union (EU) law. Taxation of back-dated holiday pay In previous Professional articles in relation to national minimum wage arrears, we’ve raised the subject of HM Revenue and Customs’ (HMRC’s) ‘Rule 2’, which allows earnings to be taxed in the years they should have been earned, rather than when they’re finally received. This applies specifically to equal pay arrears, but we believed there could be a case that these holiday pay claims could also be treated as ‘Rule 2’ payments. We were successful in agreeing this approach with HMRC on behalf of one of our clients and this had the effect of reducing tax liabilities for these awards by utilising unused allowances in earlier years, particularly for lower-paid workers. This was achieved by following the instructions at https://ow.ly/rJX450ON7Ru,
and treating the arrears as ‘week 53’ payments through real time information.
the employee hadn’t been working. The intention of this is that it would more closely align workers’ holiday entitlement with the actual time they spend working. The government proposes employers can then multiply the total hours worked in that 52-week period by 12.07% to determine the annual statutory entitlement. Another proposed change is to remove the requirement for the 52-week count back each time holiday entitlement needs to be calculated. Instead, a fixed reference period will be used for the whole of the leave year, based on the hours worked in the previous leave year, thus providing further clarity across the year. The consultation closed on 9 March 2023 and the government is currently considering the responses (at the time of writing). Watch this space! A parting note… One thing remains certain – the calculation of holiday pay remains a complicated matter and we’d encourage all employers to speak to their tax and / or legal advisers to ensure full compliance with the rules. n
A government consultation In January 2023, the Department for Business, Energy and Industrial Strategy (BEIS) published a consultation document to address an issue in relation to holiday entitlement for part-time workers, following the Brazel decision. The issue is that part- year workers are now potentially entitled to a larger annual paid holiday entitlement than part-time workers who work the same number of hours across the year, but consistently work fewer hours each week across the year. The document states: “The simplest way to do this would be to introduce a 52- week holiday entitlement reference period for part-year workers and workers with irregular hours, based on the proportion of time spent working over the previous 52-week period.” Rather than counting back to achieve as much of a 52-week reference period, the new proposal would mean that only the most recent 52 weeks would be counted, including those weeks where
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| Professional in Payroll, Pensions and Reward |
Issue 92 | July - August 2023
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