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A days holiday pay when regular overtime

How to work out a days holiday pay for workers that regularly work overtime including some weekends

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Please could I have some advice on how others manage their holiday pay calculations for those that work regular overtime including weekends. We have workers who have standard hours of 40 hours per week - Monday to Friday. On top of their standard hours, they regularly work overtime in the week and also sometimes at weekends. The overtime can vary from a couple of hours to a full 8 hour day. The overtime worked is all voluntary and paid at a different premium rate dependant on whether it is worked in the week, Saturday or Sunday. Following the East of England Ambulance Service NHS Trust V Flowers case, along with other cases, we have been incorporating voluntary overtime into our workers holiday pay. The accountants that previously ran our payroll until March, used to incorporate this by finding an average rate of pay per hour over the last 12 weeks of pay and then paying a days holiday at 8 hours (A standard day) multiplied by the average rate. This does not seem correct as although it takes into account the average pay it does not take into account the average hours worked. I have scoured the internet to search for advice on how to calculate this and have spoken to ACAS but as there is no legislation on this, I still have no clear guidance. All I can gauge is that a worker should receive their average pay for a week whilst on holiday, If I worked out an average weeks pay over the last 52 weeks then how should I work out what would be fair to pay as a days pay? If I divide the average weekly pay by 5 (the standard days Mon - Fri) then the workers who regulary work weekends will get a higher rate of pay and so if they have say a Monday off and work the rest of the week including some overtime at the weekends, they will end up earning a higher rate of pay than an average week by taking a days holiday.

Any advice on how others manage any similar situations in practice will be gratefully received.

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Scalloway Castle
By scalloway
22nd Sep 2020 12:47
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Replying to scalloway:
By AccountsGC
22nd Sep 2020 12:53

Thank you for your reply, I have already looked through this guidance and it only talks about a full week with no help of how to calculate a daily rate.

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Scalloway Castle
By scalloway
22nd Sep 2020 13:18

They are entitled to 5.6 weeks holiday or 28 days. Work out the weekly rate, mutiply by 5.6 and divide by 28.

From here.

"Overtime, commission and bonus

If you regularly get paid overtime, commission or bonuses, your employer must include these payments in at least 4 weeks of your paid holiday.

Some employers might include overtime, commission and bonus payments in your full 5.6 weeks' paid holiday (statutory annual leave), but they do not have to. This is because the law on overtime, commission and bonus payments being included in holiday pay is based on the EU Working Time Directive, which is 4 weeks' holiday only."

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By accountaholic
24th Sep 2020 13:28

I have also wrestled with this, not so much with the rules themselves, but with the practical application to payroll systems. My problem has been the payroll system is based on paying a number of hours multiplied by a rate, so I need a rate to apply to the 40 basic hours.

My method has been:

1. Work out average hours worked in the reference period ( first used 13 weeks but now use 52 weeks to avoid seasonal distortions). NB hours worked rather than £ paid at this stage.

2. Calculate average weekly paid overtime using hours from step 1, and applying current wage rate at time and half or double as appropriate.

3. Divide answer from step 2 by number of basic hours in the week, e.g. 40 hours in your example.

4. Add the answer to step 3 to the basic hourly rate to get a holiday pay hourly rate to be paid for each hour on holiday. So if on holiday for a week, pay 40 hours at the "holiday rate" calculated in this step.

It's one of these ones where the arithmetic could be done in different ways. Step 2 applies the current rate which may be more than historic rate if the employee had a pay rise. This seems fair and avoids the anomaly of the historically calculated holiday pay being less than the current basic pay. On the other hand the law says you have to be paid "what you actually earned" in the reference period, so could argue both ways. Paying less than current basic might fall foul of other rules too.

All in not easy, but I think if you have a logical basis you would be less likely to lose a challenge at tribunal if it really came to that.

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