Changes in the Holiday Pay Reference Period for Variable Working Hour employees in the UK

According to Working Time Regulations 1998, all employees are entitled to 5.6 weeks’ paid holiday per year. The amount of pay that an employee receives for the holiday they take depends on the number of hours they work and how they are paid for those hours. Currently, for employees working variable hours, the average pay from the employee’s last 12 weeks of earnings (discounting other leave, statutory payments, or nil earnings) is used to determine the pay that the employees receive for their leave.

Effective April 6, 2020, the reference period for calculating holiday pay for variable hours workers will increase from 12 to 52 weeks. Where an employee has been with the employer for less than 52 weeks, the reference period will be the number of weeks for which the employee has been employed. The 52-week reference period will function in the same way as the previous 12-week period:

• Employers must count back across the last 52 weeks that the employee has worked, and received pay.
• Weeks in which no payment was received will not be counted towards the 52-week average.
• In situations where employees have worked for less than 52 weeks, employers should use as many full weeks of work as possible to calculate holiday pay.
• Contractually obliged overtime worked during the reference period must also be included in holiday pay.

The holiday pay reference period begins from the last whole week concluding on or before the first day of the period of leave. This will typically be a week from Sunday to Saturday, but it could end on another day of the week if an employee is paid on a weekly basis.

Where an employee is paid a regular monthly salary, with fixed hours and fixed pay, there is no need to make a separate holiday pay calculation. The employee will be paid their normal monthly amount for months where the holiday has been taken. For those employees paid monthly, but where their pay varies (for example, depending on the amount of work done) the employer will need to use the holiday pay reference period.

What Should Employers Do Now?

Employers should ensure they keep records of employee pay for the 52 weeks prior to April 6, 2020, and continue to do so thereafter.