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With the summer holidays in full swing, we are being inundated with companies asking about holiday entitlement calculations and holiday pay calculations.
The thing with holiday calculations is that they are not always straightforward. The amount of holiday entitlement will depend on how many days or hours your employee works and if they are working shifts or variable hours. Therefore, many employers may find themselves having to do different holiday entitlement calculations for each employee.
On top of this, the holiday pay calculations should be based on ‘normal pay’. But what exactly is ‘normal pay’?
There has been a lot of confusion about this recently. With some court judgements to be considered and the recent decision to leave the EU, many employers are left feeling frustrated and uncertain of what should be included in holiday pay calculations. A lot of this due to the EU working time regulations that the UK has adopted with regards to the first 20 days of annual holiday entitlement, pro-rata for part-time workers. These are commonly known as the Euro holiday days with the remaining 8 statutory holiday days being under UK legislation. A lot of the recent court judgements have been applied to the 20 Euro days only, making things even more complicated for employers and often with conflicting advice from various sources.
Our advice is to keep things as simple as you can. Take the average hourly rate paid to the employee over the past 12 weeks leading up to the holiday period. The average should be taken from the total amount paid including:
All overtime payments
All commission payments
All work related travel payments
Where the employee has had a week unpaid during the past 12 weeks, a further week should be added to the calculation, i.e. 13 weeks average.
This is the rate of pay that should be used to calculate holiday pay entitlement for all employees. To keep things simple, apply this rate to all 28 statutory holiday days. But remember to do a new average calculation for every holiday period.
Also, bear in mind that holiday entitlement still accrues during absences and maternity leave.
The only time that holiday pay can be legally be paid in lieu is when the employment ends. Also remember that holiday pay cannot be calculated as part of an hourly rate, known as rolled-up holiday pay. It must be paid at the time when the holiday is taken.