All workers, except those who are genuinely self-employed, are legally entitled to 5.6 weeks paid holiday per year.
Ideally workers should receive the same amount of pay while on holidays as if they were working normally. For most workers who are full time and on fixed hours and pay they receive the same weekly or monthly salary as if they were in work normally.
For workers who are not on fixed or regular hours this becomes slightly more complicated as they do not receive the same pay each pay period. In this case a holiday pay reference period needs to be used to calculate fair payment while they are on leave.
Guidance on this from HMRC states that you should use the previous 12 paid weeks as a basis of what the employee earns. These 12 weeks do not have to be consecutive, if an employee has a week with no payments then this is disregarded and a full week is to be used to get a fair representation of their earnings.
This 12-week reference period is set to increase to 52 weeks in April 2020. This change should even out the seasonal variation in pay for casual workers and giving a fairer representation of their weekly pay.
A holiday reference period should start from the last whole week that was worked ending on or before the first day of leave, starting on a Sunday and ending on a Saturday.
If an employee is paid a regular monthly salary there is no need to use a holiday pay reference, they will just be paid their monthly salary as normal. Where an employee is paid monthly but with varying pay then you will need to use a holiday reference period. If a worker is not paid weekly it is still important as an employer to work out their weekly pay to determine entitlements such as maternity pay and parental pay as well as holiday pay.
If a worker is paid a variable hourly rate it might be easier to use an average hourly rate to estimate their weekly pay. You can calculate this by multiplying the hours worked in a week by the average hourly rate of pay.
An employer should discount Week 6 in the example above, substituting Week 13 for Week 6 to take the total to 12 weeks of pay data when calculating holiday pay for this period. A week’s holiday taken in the week following would be paid at a rate of: £221.67 (the average weekly pay from the pay data in the table above)
Paid annual leave is a legal right that an employer must provide. Payment to employees should be calculated in the fairest possible way to ensure continuity of income when they take their leave.
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