March 9, 2020
On 6 April 2020, the reference period for calculating holiday pay in the UK will change. The move comes as part of the UK government’s ongoing effort to improve transparency between employers and employees.
The changes will impact how holiday pay is calculated for workers who have variable hours, such as those in seasonal roles, zero hours contracts, those who work regular additional hours or those who work voluntary or compulsory overtime. Variable pay will also include those who have other regular payments including regular allowances or bonuses.
The majority of the UK’s workforce are full-time employees on fixed hours and fixed pay. For these workers, typically on a fixed monthly salary, if they take a week’s holiday, they will receive the same pay at the end of the month as they normally receive. The situation is more complicated when a worker does not work fixed or regular hours and so does not receive the same amount of pay each week, month or other pay period.
Currently in these circumstances, an employer should normally look back at a worker’s previous 12 paid weeks (known as the holiday pay reference period) to calculate what that worker should be paid for a week’s leave.
Under the new regulations, the pay reference period will be 52 weeks or, for those workers who have been working for less than 52 weeks, the total number of weeks they have worked.
What does it mean for your business?
These changes to the methods in which holiday pay is calculated should provide greater clarity for businesses with workers on variable hours, as the change in reference period should help even out any peaks and troughs in pay. It should also reduce the incentives for employers to either encourage workers to take annual leave before busy periods or to discourage workers from taking leave just after busy periods.
- Employers should begin payroll preparations now and review the reference period used to calculate holidays
- Businesses must ensure that their records of the hours worked and pay received by these workers are correct as any incorrect records will directly impact on pay. Online clocking in systems or time-sheets can be helpful to track the exact hours worked by each worker, where details of hours worked and any variable pay entitlement can be logged.