On 6 April 2020, the legal position on calculating holiday pay changed. Most importantly, the reference period to calculate a ‘week’s pay’ for the purposes of calculating holiday pay has changed from 12 weeks to 52 weeks. This means that employers must consider the pervious 52 weeks of employment to calculate the individual’s “normal remuneration”. Employers should include regular overtime and any commission payments in this calculation. A week starts on a Sunday and ends on a Saturday.
This is particularly beneficial to individuals working in the care sector as they may not have a regular working pattern and will often work varying shifts and work overtime, meaning their pay will also vary week to week. The new method of calculating holiday pay provides an increased level of consistency in pay for employees and ensures that they are not at a disadvantage if they have worked fewer hours in the weeks approaching a holiday.
For those employee’s who have less than 52 weeks’ service, the employer must go back to the start of their employment and use however many complete weeks they have worked to calculate an average.
If there are any weeks where the employee has received no pay, for whatever reason, these weeks should be disregarded and you should go one week further back (i.e. 53 weeks). This is intended to ensure that individuals on zero-hours contracts are not at a disadvantage for any weeks where they did not undertake any work.
Failure to comply
There may be serious consequences for failure to comply with the new rules as employees can bring a claim to the Employment Tribunal for arrears of pay for up to two years. This can be financially catastrophic for businesses, particularly if it involves all employees.
What should employers do?
Employers should be taking the following steps:
- Ensure your payroll team are fully up to date with these changes and provide training where necessary.
- Pay particular attention to employees who receive varied pay.
- Ensure that all overtime is properly recorded.
- Ensure that holiday payments for each different period of holiday are dealt with on a case-by-case basis.
