The Good Work Plan: Holiday Pay Reference Period

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Contractors have free reign on when they decide to take holidays, so there’s no doubt they’ll be planning for their next trip away.

We’ve delved deeper into the topic of holiday pay, and how the process of calculating holiday pay could impact the amount that reaches their pocket. Keep reading to find out what the changes mean for both employers and employees.

Accruing holidays and holiday pay

Holiday pay is given on the basis that employees should not suffer financially for taking holiday leave from work. All employees are entitled to 5.6 weeks paid holiday each year, taken from the Working Time Regulations 1998, the only exception to this being those who are genuinely self-employed.

Employees accrue holiday leave whilst they are on either sick, maternity, adoption and parental leave. The pay received by a worker whilst they are on holiday should reflect what they would have received whilst working, and the amount of holiday pay a worker receives depends on two factors:

  • The number of hours they have worked
  • How they are paid for those hours

Variable working hours and holiday pay

Most people in the UK work on a full-time basis, with a fixed number of hours per week. This is combined with a fixed monthly salary, meaning if that the worker takes a week’s holiday, they will receive the same salary as they would typically receive.

When an employee’s hours tend to vary, the calculation becomes more complex. As a result, their pay will fluctuate, making it difficult to give an exact figure on how much holiday pay the worker should receive. As things stand, employers should look back at the worker’s previous 12 paid weeks (known as the holiday pay reference period), to calculate how much the worker should be given for a week’s leave.

Changes to the holiday pay reference period

From the 6th April 2020, the Employment Rights (Miscellaneous Amendments) Regulations 2019 amends the holiday pay reference period from 12 weeks to 52 weeks. This means that holiday pay is calculated as the average pay over 52 weeks rather than 12, and has been introduced to ensure that seasonal workers, who often work more hours at peak times, do not lose out as a result.

If there are fewer than 52 pay weeks, employers are advised to use as many pay weeks as are available.

With you all the way

As Parasol have always accounted for holiday pay each pay period, there are no adjustments required to our systems. This means that we are already prepared and fully compliant with this requirement.

You will need to take action to ensure your holiday pay calculation is updated only if you employ your workers directly. If you would like to find out more, please get in touch.