Global Compliance Desk – United Kingdom
Increase in Holiday Reference Period
The definition of a ‘week’ for the purpose of the holiday pay reference period:
- A week is defined as starting on a Sunday and ending on a Saturday;
- The holiday pay 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.
There is an exception for workers whose pay is calculated weekly by a week ending on a day other than Saturday. In these cases, a week is treated as ending with that other day. For example, if a worker’s pay is calculated by a week ending with a Wednesday, then the employer should treat a week as starting on a Thursday and finishing on a Wednesday.
The Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 (SI 2018/1378) increase the reference period used for determining a week’s pay when calculating holiday pay for workers with irregular hours from 12 weeks to 52 weeks.
This change is designed to even out the seasonal variation in pay for many casual workers. Alongside this change, the government has also clarified that the holiday pay reference period should include as many whole weeks of pay information as are available (if less than 52 weeks). This change will become effective from April 6, 2020.
The ACAS booklet “Holidays and holiday pay” recommends that for staff working on a casual basis or very irregular hours, holiday pay should be calculated as 12.07 percent of annualized hours, on the basis that the statutory annual leave entitlement of 5.6 weeks represents 12.07 percent of a working year of 46.4 weeks (ie 52 weeks minus 5.6 weeks). This method effectively caps a worker’s holiday pay to 12.07 percent of annual earnings with the effect of pro-rating holiday pay entitlement for “part-year” workers (such as term time only or seasonal workers).
The Court of Appeal has ruled that holiday pay for a teacher who worked irregular hours on a permanent term-time, or so-called “part-year” contract, should be calculated using her average earnings over a 12-week period and not pro-rated according to the proportion of the year worked.
Example of How a 52-week Holiday Pay Reference Period Would Operate
Christina works in a large retail store, working on average 35 hours each week. July, August, and September are quieter months for the store and so Christina typically works 25 hours per week. Under the current 12 week reference period for holiday pay, if Christina takes holiday in October, immediately after this quieter time, her holiday pay will reflect her 25-hour working week. This means she will receive less holiday pay compared to busier times of the year. However, once the reference period is extended to 52 weeks, Christina’s holiday pay would reflect her average hours for the entire year, which are usually higher than during these quieter months. This is a fairer approach for Christina and her employer as her holiday pay will better reflect her working hours across the year.
Employers need to make sure that those within their organization who are responsible for calculating these payments are aware of, and trained on, the new requirements. They also need to ensure that they are accurately recording employees’ hours and pay now so that they have records dating back at least 52 weeks.