Holiday pay: it comes with the job

You may have seen adverts from the holiday pay awareness campaign earlier this year: ‘Holiday pay. It comes with the job’. This is part of a wider government initiative, the modern Industrial Strategy, aimed at giving employers and workers better understanding of workplace rights and responsibilities. Nottingham accountants Clayton & Brewill explains more about holiday pay and provides some guidance to help employers get it right.

Holiday payRecent research suggests some 1.8 million people currently do not receive the holiday pay to which they are entitled, and means employers are potentially underpaying their workforce something in the region of £1.8 billion each year. High-risk categories are those working non-standard hours, or in less traditional roles, such as flexible workers, zero-hour contract staff, agency workers and temporary staff.

Determining employment status

For employers, the issue is about correctly determining employment status, and understanding the rights pertaining to the various employment categories. For tax purposes, there are just two employment categories: employee or self employed. For employment law purposes, there are three: employee, self employed or ‘worker’. Holiday pay entitlement extends not just to full time staff, but to part time and zero-hours staff, too: so it is important that employers appreciate this means not just employees, but those in the ‘worker’ category, as well.

Relevant calculations are based on the number of days or hours worked, and how someone is paid. Any additional arrangements made with the employer also need to be factored in. The underlying concept is that pay received on holiday should mirror what would have been earned at work.

Calculating holiday entitlement and pay

Holiday entitlement starts to build up from the first day of work; and probationary periods, periods of sick leave, maternity, paternity or adoption leave also count towards it. Basically, a week’s pay is due for each week of statutory holiday leave, and most workers are entitled to 5.6 weeks of paid holiday each year.

Where someone gets a regular monthly salary, with non-varying hours and pay, no separate holiday pay calculation is needed. These staff simply get the usual monthly payment for any month which includes holiday.

But working out what constitutes a ‘week’s’ pay for shift workers or people not working fixed hours is more complicated. Here calculations involve establishing average hours or average pay, looking back over the last 12 paid weeks of work. A ‘week’ usually means seven days running from Sunday to Saturday, but there can be exceptions to this. The 12-week period is known as the ‘holiday pay reference period’. Note that from 6 April 2020, the holiday pay reference period increases from 12 to 52 weeks.

Care is needed where there are workers on short contracts, or where temporary or agency workers are involved. If holiday entitlement has not been taken by the time such workers leave, they are due payment in lieu of untaken holiday. There is a holiday entitlement calculator for employers to use, which may be helpful.

Updated guidance regarding workers with irregular hours can be found here. This includes details of case law regarding holiday pay, and potential problem areas where EU and UK legislation interact.

For further information on any information in this article, or have any questions relating to holiday pay or other payroll matters, please contact Sarah Pownall, our Payroll Manager, who will be happy to assist you.

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