BackgroundThere have been a number of court judgements made over the last few months in relation to the calculation of holiday pay. The judgements specifically refer to those employees whose pay fluctuates between pay periods due to additional payments such as overtime or commission. There continues to be cases around the calculation of holiday bought through the courts and these may or may not further impact an Employer’s responsibility in this respect.
The Advisory, Conciliation and Arbitration Service (ACAS) provide advice on the subject of holiday pay and these rulings: ACAS advice on Holiday Pay.
Please Note: The information held on this website is the property of ACAS and is constantly being updated; please contact them for any questions about the content.
Current People System Employee Type Holiday Calculation Methods
An hourly or shift paid employee who works regularly but doesn’t have a standard weekly working pattern.
For flexible employees, holiday pay is calculated using an average of hours worked over the past 12 or 26 weeks and the data is collated from the closed rotas. Employees are paid their normal hourly rate for the average number of hours per holiday day.
For Casual employees, who have no contractual obligation to work or to be provided hours (e.g. seasonal workers), holiday accrues as the hours are worked. Therefore, for every hour that a casual employee works, 12.07% is added to the holiday accrual and will continue to increase as workers are scheduled on the rota. This holiday does not expire at the end of the holiday year as it accrues based upon worked hours. The employee is paid their normal hourly rate for each hour taken as holiday.
Salaried EmployeesFor the majority, when a salaried employee goes on annual leave, no adjustments are made to their payslips. Their holiday records are kept to track the employees’ holiday entitlement.
Typically for salaried employees their holiday pay amount is not affected by fluctuations in their pay. Fourth People System currently does not support the inclusion of additional payments into the holiday pay calculation and pays the employee the standard salary rate when they take holiday.
Hourly or Shift Paid Employees on the Full Time or Part Time Holiday Scheme
Although these employees are paid by the hour/shift, they have a holiday entitlement set in the system (either at job title level or using the FTE override function). When they take holiday, their daily rate is calculated by calculating their hourly/shift rate multiplied by the FTE values set within People System.
What Should I Do?Your method to calculate holiday pay may be different to other employers and should be specified in your employees’ contract.
To limit the potential risk of tribunals, we recommend you seek independent legal advice on which elements of pay you should be including to calculate holiday pay.
Once legal advice has been sought, if you feel you are at risk you may decide to make an additional payment to employees when they take holiday leave.
Fourth Bureau Customers
You will need to calculate the value of the additional payments manually and supply the Bureau with the values and payment type as part of the process in the relevant pay period in which payment should be made. This data should be submitted to the Bureau using your usual upload request or timesheet.
If you wish to have a new payment type set up to make these payments and do not have access to create this yourself, you should ask the Bureau for a “New Payment Type Request Form” in advance of the first pay period you want to make payments.
In-House Payroll Customers
You will need to calculate the value of the additional payments manually and enter them into payroll in the relevant pay period against the payment type of your choosing.
SolutionFourth is currently developing a solution that will allow flexibility for our customers to decide which payment types should be included in the calculation of average pay.
A brief outline of the solution is as follows:
The Payment Type Screen will be updated to allow you to choose which pay element(s) should be included in the calculation of average pay for Holiday Pay. This will affect the calculation for all types of employees with the exception of Casual.
For example, if you wish to include overtime payments in the holiday pay calculation you will tick the “include in holiday pay” option against the Payment Type.
- If you use the HR module of the People system and do not use Fourth’s payroll (with or without Bureau services) you should contact your payroll provider if you need assistance on this matter. We only make an indicative holiday pay calculation in the HR module and we will not be making any enhancements to this indicative calculation as a result of these rulings.
- If you pay employees via a rota you will not be able to make a distinction between different types of overtime i.e. Voluntary, Guaranteed and Non-Guaranteed. Instead you will have the choice to either include or exclude all overtime in the holiday pay calculation.
- You may have read that the inclusion of additional payment types in the holiday pay calculations may apply only to the statutory minimum holiday entitlement, currently 20 days per annum. You will not be able to make a distinction between the statutory minimum and any allowance over and above this (including 8 public holidays). All holiday days will be paid using the same method.
- There is specific reference to the inclusion of Work-related travel as a result of the recent court judgements. Where you make these payments for time spent travelling directly in the Payroll Module, the payment type should be flagged to be “included in the holiday payment”. Alternatively, if this time is already included in the employees start and end times on the rota, it will automatically be included in the holiday pay calculation.
- The Day Rate value shown on the Employee’s Holidays screen is an indicative rate , correct only at the particular point in time it is viewed and this functionality will not change.
When Will This be Available?
You will receive further communication with intended release date and more detailed release notes in due course. Fourth anticipates that this functionality will be available during December 2015.
QuestionsPlease contact your own legal advisor or ACAS for any questions relating to the court rulings and case laws.
Please contact your Fourth representative with any questions regarding the proposed solution.