Changes to holiday pay calculations
Oct 11, 2019
If you’re an employer, then from April 2020 you will have new rules to follow when calculating your employees’ holiday pay. As a result of a report called the ‘Good Work Plan’ which was commissioned by the government at the end of 2018, a new set of proposals has been legislated for which are designed to strengthen workers’ rights and offer more protection to the UK labour market.
Needless to say these extended employee rights will have a knock on effect on you as an employer, causing extra admin work and in some cases, additional cost. It’s important that you understand what the changes are and that you start making plans now to prepare for them.
If you have any employees on variable pay, the way you need to calculate their holiday pay will be different. And by variable pay, we mean workers who have any sort of variation to their normal week’s pay on a regular basis. It doesn’t just include hourly-paid casual workers or zero-hours staff, it also includes those on commission, bonuses or even staff who work voluntary overtime at least once a month.
For this group of employees, the holiday pay they receive is currently calculated based on the amount they’ve worked in the preceding 12 weeks. From April 2020 this period is extending, and their holiday pay will need to be calculated on the basis of the 52 weeks before their holiday is taken.
We’re not yet sure exactly how this holiday calculation is going to be incorporated into payroll software, but it makes sense for you to start recording employee hours worked each week as soon as possible in order to start building up a 52 week record. If gaps in your employee’s work pattern mean there’s not actually a straight run of 52 weeks prior to their requested holiday period, this means you will then have to count back as far as 104 weeks.
Other changes to workers’ rights
Other changes for you to take on board include an extension to the period which constitutes a gap in continuous service. At the moment, if a worker has any more than a one-week gap in their employment then this counts as a break in their continuous service. From April 2020, gaps of anything up to four weeks will not be considered a breach in continuous service. This will have an effect on any service-related benefits such as statutory maternity pay and redundancy pay. Meanwhile these and other entitlements will also be extended to a wider range of workers.
Another point of note regarding hourly-paid casual workers or zero-hours staff – as of next April, if they’ve been employed for 26 weeks, they’ll have a right to request a permanent number of hours or days. You will have to consider their request, but you’re not obliged to accept it, and you’ll have three months to make your decision.
At the moment HMRC is one of several agencies responsible for the enforcement of employment rights, and it leans very heavily on any abusers of national minimum wage regulations. Currently there is no enforcement agency responsible specifically for holiday pay rights, and any disputes have to go to employment tribunals. But the government is now proposing an all-encompassing state-led enforcement agency which will cover all areas of employment rights and holiday pay. If HMRC is anything to go by, such an agency will take a rigorous approach to employer compliance and you will need to be on the ball to ensure you toe the line.
If you have any queries about handling employee payroll issues please don’t hesitate to get in touch with the PT team – we’ll be happy to help.