Changes to the Calculation of Holiday Pay

Changes to the calculation of holiday pay

This change is a consequence of the Good Work Plan.

What is a week’s pay for the purposes of calculating holiday pay has changed with the development of employment case law. Currently where a worker has no normal working hours;  or normal working hours whose pay varies with the amount of work done or the times of days on which it is done; holiday pay is calculated as an average of all remuneration earned in the previous 12 weeks, and includes any overtime payments and commission.

From 6 April 2020, the 12-week reference period used to calculate statutory holiday pay will be extended to 52 weeks (or the number of complete weeks for which the worker has been employed, if that period is less than 52 weeks).

The aim of the legislation is to ensure that workers who do not have a regular working pattern throughout the year are not disadvantaged by having to take their holiday at a quiet time of the year when their weekly pay might be lower.

Loates Tips

  • Ensure your payroll systems are up to date to calculate holiday pay correctly
  • Calculate a week’s pay with reference to the previous 52 weeks (or however many weeks engaged if less than 52), not 12 weeks as previously
  • For transparency ensure holiday pay is shown separately on the itemised pay slip (applicable to both employees and workers).

What's on the horizon?

A right for those on zero-hours or other flexible contracts to request a more stable and predictable contract.

This seeks to address the one-sided flexibility and may include reasonable notice of working hours, what is reasonable is yet to be determined. Compensation for shift cancellation without reasonable notice, and the right to a contract that recognises 'normal' working hours. This would mean workers could switch to a contract that reflect their normal working hours. No timescale has been given for the introduction of this.

  • Making it easier for casual staff to establish continuity of employment
  • Employment status tests to be refined after further research; online employment status tool to be developed
  • State-led enforcement of holiday pay for vulnerable workers (similar to National Minimum wage naming and shaming)
  • Ban on deductions from staff tips
  • New single state enforcement agency
  • Naming of employers who fail to pay tribunal awards.
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