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Legal News | 6.03.24

Holiday Pay

Holiday Pay - Corporate & Commercial - Wansbroughs LLP

Following on from our article on Holiday Entitlement, we are now looking at how holiday pay is calculated for those who have normal working hours, irregular working hours, start part-way through the holiday entitlement year and casual members of staff.

What is holiday pay and who is entitled to it?

The Working Time Regulations 1998 (WTR), outlines that workers are entitled to a week’s pay for each week of leave, which is to be calculated in accordance with the rules contained in the Employment Rights Act 1996 (ERA). There is no cap on the amount of a week’s pay for these purposes.

The way the payment is calculated under the ERA depends on several factors, including whether the worker has “normal working hours” or “no normal working hours”.

Workers with normal working hours

A week’s pay is calculated on the basis of the pay the worker receives for working their normal working hours. This will usually include their basic salary and any guaranteed or compulsory overtime. It will not include general overtime payments, commission, bonuses, and expenses claims.

Workers with normal working hours but their pay varies

Where a worker has normal working hours but their pay varies either by reference to the time of day or their output, a week’s pay is calculated based on the worker’s average remuneration over the 52 weeks before the calculation date, or the number of complete weeks the worker has been employed (if under 52 weeks). The calculation date will be the date before the requested holiday is taken.

Workers with no normal working hours

Currently, if a worker does not have “normal working hours”, a week’s pay is calculated as an average of all remuneration earned in the previous 52 weeks, or the number of complete weeks the worker has been employed (if under 52 weeks). This includes overtime payments, commission, bonuses and other allowances or payments. Expenses claims are not included.

Weeks in which no remuneration has been received are ignored, as are weeks where an employee receives sick pay, maternity, paternity, adoption, parental, shares parental or parental bereavement leave for any part of a week. Earlier weeks will be considered up to 104 weeks before the relevant date.

An example calculation is:

WeekGross pay per weekPaid/ Unpaid
1 – 10£400Paid
11£0Unpaid
12£200Paid
13-30£350Paid
31- 33£300Paid
34-35£0Unpaid
36- 50£450Paid
52-55£250Paid

 

The employer should discount weeks 11, 34, and 35 in the table, as there was no pay in these weeks. As three weeks were discounted, the employer has to go back a further three weeks to reach the 52 weeks of payment data in order to calculate the holiday pay.

The calculation is: (10 x £400) + (1 x £200) + (18 x £350) + (4 x £300) + (15 x £450) + (4 x £250) = £19,450.

This is then divided by 52 to calculate the weekly average.

£19,450 ÷ 52= £374.04

Subsequently a week’s holiday taken the week following the previous 52 weeks would therefore be paid at a rate of £374.04.

1st January 2024 change for workers with normal working hours 

On 1 January 2024, the WTR introduced regulation 16A. This allows for employers to pay rolled up holiday pay at a rate of 12.07% of hours worked to “irregular hours” and “part-year” workers in respect of a leave year starting on or after 1 April 2024.

It is left to the employer if they apply the 52-104 week average or pay rolled-up holiday moving forwards.

The next article in the series will consider the pros and cons of an employer using the 52-week average, or the new rolled-up holiday method for irregular workers.

This article is a summary of the relevant legislation and should not be relied upon as legal advice for specific circumstances. If you would like more specific employment advice, or if you have any other queries, then please contact:  01380 733300 | commercial@wansbroughs.com

 

 

Posted By Our Corporate & Commercial Team