Calculating Holiday Pay – Updated Guidance

In light of a number of recent court judgements and the resulting changes to regulations, Acas has updated their holiday pay guidance to assist employers in calculating holiday pay.

Several key points that employers should be aware of:

• Guaranteed and normal non-guaranteed overtime should be considered when calculating a worker's statutory holiday pay entitlement but there is currently no definitive case law that suggests voluntary overtime needs to be taken into account.
• Commission should be factored into statutory holiday pay calculations.
• A worker's entitlement to holiday pay will continue to accrue during sick leave (both paid and unpaid). If a worker is unable to take their annual leave in their current leave year because of sickness, they should be allowed to carry that annual leave over until they are able to take it, or they may choose to specify a period where they are sick but still wish to be paid annual leave at their usual annual leave rate.
• There are different rules for calculating holiday pay depending on the working patterns involved:   (a) For workers with fixed working hours - If a worker's working hours do not vary, holiday pay would be a week's normal remuneration. (b) For workers with no normal working hours - If a worker has no normal working hours then their holiday pay would still be a week's normal remuneration but the week's pay is usually calculated by working out the average pay received over the previous 12 weeks in which they were paid. (c) For shift workers - If a worker works shifts then a week's holiday pay is usually calculated by working out the average number of hours worked in the previous 12 weeks at their average hourly rate.
• Workers must take their statutory paid annual leave allowance and can only be 'paid in lieu' for this when their employment ends. While workers are in employment, 5.6 weeks of their annual leave (this is the amount all UK workers are statutorily entitled to) must be taken and cannot be 'paid off'. Anything above the statutory allowance may be paid in lieu but this would depend on the terms of the contract. When a worker's employment is terminated, all outstanding holiday pay that has been accrued but not taken (including the statutory allowance) must be paid.
• Work-related travel may need to be factored into statutory holiday pay calculations.

The Government has also introduced regulations to take effect from 1 July 2015 to limit and clarify the maximum amount of back-dated holiday pay that can be claimed. The change will mean that when making claims for a series of backdated deductions from wages, including any shortfall in holiday pay, the period that the claim can cover will be limited to a maximum of 2 years.

Further information in addition to the above can be found on the ACAS website at holiday pay guidance.

Posted byVictoria ClarkeinPayroll