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Holiday pay for employee on 0 hour contract

How do I work out how much to pay an employee on a 0 hour contract?

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I'm new to payroll, I have my first employee who has taken holiday.

Employed since 1st october 

Holiday runs from 1st October to 30th September

Employee hasn't used any of their holiday entitlement.

In those 39 weeks they have worked 2153.50 hours and have earned 15814.67

From what I can make out i multiply the hours worked by 12.07% to work out their entitlement - so they are entitled to 259.93 hours

What i'm having trouble understanding is how I work out how much to pay them for the 3 weeks they have taken off.

Any advice would be greatly appreciated thank you

 

 

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RLI
By lionofludesch
27th Jul 2021 22:16

Has this employee not been paid for bank holidays?

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RLI
By lionofludesch
27th Jul 2021 22:23

Loads of guidance on google.

Look at assets publishing service/calculating holiday pay for workers without fixed hours

Basically, you're looking at sn average of the last 52 weeks but it's not quite that straightforward.

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Replying to lionofludesch:
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By TraceyF1980
28th Jul 2021 06:15

Thank you. I will take a look at that.

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By Elena @ ESA. Ltd
28th Jul 2021 02:39

I'm afraid the calculation is not that straightforward.... :(

I worked in Payroll with Zero-hours workers and had a pivot table of their weekly earnings, weekly hours and days per week worked.

Then the average of both: Days in a week & Hours in a week for a period of 12 weeks prior to the holiday taken (in your case, the whole period - 39 weeks) should be used in the calculation for weekly Accrued Days & Accrued Money...

Accrued Days = WTR Pct (0.120689655) * (T/S Hours/AV Hours in Week) * AV Days in Week (bearing in mind that the limit of 40 hrs per week is usually applied)

Accrued Money = WTR Pct * Weekly Earnings

Rate = Total Accrued Money / Total Accrued Days

Hope it helps.

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Replying to Elena @ ESA. Ltd:
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By TraceyF1980
28th Jul 2021 06:37

Thank you for that, could I just ask what does WTR and T/S hours stand for please.

I'll start doing that pivot table as that would be really helpful.

Thank you so much for your help.

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Replying to TraceyF1980:
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By Elena @ ESA. Ltd
28th Jul 2021 09:42

Sorry, Tracey, I got carried away with the abbreviations.

WTR Pct- Working Time Regulations per cent, 12.07%, or 0.120689655 I mentioned.

T/S hours - weekly hours submitted via timesheet (as workers do).

I got that formula from SAGE when I tried to customise their Payroll settings to fit the Zero-hour business environment.
Later on, I checked the calculations on rostering software with HR compliance for the time & attendance module. The developers were using the same approach.

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Replying to Elena @ ESA. Ltd:
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By Hugo Fair
28th Jul 2021 11:43

I'm sorry, but this 'solution' is not only years out of date ... but more importantly is not compliant with current employment legislation. In particular:
* You are not allowed to use the concept of accrued pay or days any more;
* The averages that you need to work out are for the previous 52 weeks (or up to 104 weeks if necessary as unpaid weeks aren't counted), not a mere 12 weeks.

The 'solution' as set out is arguably more accurate/fair (and is a simpler version of what I used to do) ... but it is no longer compliant - and the current rules must be followed (even when they sometimes lead to inconsistent results)!

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By Hugo Fair
28th Jul 2021 11:53

If you want a very simple overview of the current rules, try https://www.acas.org.uk/checking-holiday-entitlement/calculating-holiday... (and see the 'No fixed hours' section').
Or for a bit more guidance, try https://www.gov.uk/holiday-entitlement-rights/holiday-pay-the-basics ... and follow indicated links to further details (such as https://www.gov.uk/government/publications/holiday-pay-calculate-your-av... )

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By Hugo Fair
28th Jul 2021 11:56
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By Elena @ ESA. Ltd
28th Jul 2021 13:32

Hugo Fair wrote:

* The averages that you need to work out are for the previous 52 weeks (or up to 104 weeks if necessary as unpaid weeks aren't counted), not a mere 12 weeks.


Agree 100%. It used to be 12 weeks.
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Replying to Elena @ ESA. Ltd:
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By Hugo Fair
28th Jul 2021 13:57

Yes, I should have said that everything in your 'solution' was perfectly valid once upon a time (and indeed the 12 week rule was only replaced by the 52 week variant from April last year).

But, just to be clear, my other bit about "You are not allowed to use the concept of accrued pay or days any more" is arguably even more important - and has been the case for quite a few years.
Those of my vintage will remember 'rolled-up holiday pay' ... followed by the temporary measure that I invented of 'unrolled-up holiday pay', which then evolved into a full accrual system (where any hourly pay automatically generated an amount that was added to the holiday pay 'pot' without being actually paid) - and payments could be called off from this when the employee took leave or left.

As I hinted before, this methodology had the benefit of being easy to understand (by the employee) and easy to manage (with software), and also equitable (in that two employees on the same hourly rate received the same hourly holiday pay).
Whereas the new rules can lead to apparent inequity (where those two employees worked similar amounts of overtime on different dates or had different sickness absences) ... but they are the rules!

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Replying to Hugo Fair:
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By Elena @ ESA. Ltd
28th Jul 2021 19:28

Hugo Fair wrote:

But, just to be clear, my other bit about "You are not allowed to use the concept of accrued pay or days anymore" is arguably even more important - and has been the case for quite a few years.
Those of my vintage will remember 'rolled-up holiday pay' ... followed by the temporary measure that I invented of 'unrolled-up holiday pay', which then evolved into a full accrual system (where any hourly pay automatically generated an amount that was added to the holiday pay 'pot' without being actually paid) - and payments could be called off from this when the employee took leave or left.

....Whereas the new rules can lead to apparent inequity (where those two employees worked similar amounts of overtime on different dates or had different sickness absences) ... but they are the rules!


I do remember "rolled-up" being ruled out. :)

It's excellent that accrued complicating calculation is out of the window as well.

"No fixed hours (casual work, including zero-hours contracts)
A worker's average pay from the previous 52 weeks (only counting weeks in which they were paid)."
What would be the current workout for the holiday entitlement rate in the OP's case?

Rate = Average Earnings in 39 weeks / Average Hours in 39 weeks?

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By NYB
28th Jul 2021 16:02

Hellish HP and rules on Zero hours contracts. One of my clients adds up the hours to give a monthly pay figure. They dont kind of keep the weekly hours because of course 52 weeks are not 12 months. You have to go back 52 clear weeks (up to a max of 104). Factor in Furlough weeks and every employee being different its dreadful. I now have a spreadsheet in place recording it all week by week but its going to take over 52 weeks for it to be any use. Other than that I'm doing my best. BUT I have casual employment with TUI. Their letter with hourly rate and HP was on it. And guess what. my HP is 12.07% - the figure that shouild not be used. And yes - that is for this year.

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RLI
By lionofludesch
28th Jul 2021 16:16

There's a vast amount of work for the sake of tiny sums of wages.

I'd be tempted to say "**** it" and just pay the employee over the odds.

It just wouldn't be worth my time. As long as the employee gets paid more than the minimum, there's no comeback.

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Replying to lionofludesch:
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By NYB
28th Jul 2021 16:32

Love it - thats exactly what Im doing. These are very low earners. I add some on!

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By lionofludesch
28th Jul 2021 16:48

NYB wrote:

Love it - thats exactly what Im doing. These are very low earners. I add some on!

How much? Or is that confidential?

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Replying to lionofludesch:
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By NYB
28th Jul 2021 17:12

Not at all. I do 14 months and divide by 12. Reckon that gives a bit of leeway.
I have no idea how people do it with employees with so many different working weeks. Everyone is different. Fine if you have your 104 weeks to work with but who is weekly paid nowadays with those hours in the payroll
My two ( connected) now give me monthly pay and a week by week number of hours.

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By Elena @ ESA. Ltd
28th Jul 2021 19:50

NYB wrote:

I have no idea how people do it with employees with so many different working weeks. .


When there is data in a good order, it can be arranged in any way you need it to be. :)
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Replying to lionofludesch:
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By Hugo Fair
28th Jul 2021 17:49

Pragmatic? Yes.
Correct? No.
Does that matter? Well ... it depends ...

The only potential issues I can see are when comparators come into play (either between two members of staff who find that one has ended up comparatively better off than the other one due to the rules not being followed, or by any individual member of staff who queries why their overtime rates aren't based on the same as their hourly holiday pay).

Still think it's an excellent/pragmatic MO, but have to flag the potential dangers.

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Replying to Hugo Fair:
RLI
By lionofludesch
28th Jul 2021 18:43

Hugo Fair wrote:

Pragmatic? Yes.
Correct? No.
Does that matter? Well ... it depends ...

The only potential issues I can see are when comparators come into play (either between two members of staff who find that one has ended up comparatively better off than the other one due to the rules not being followed, or by any individual member of staff who queries why their overtime rates aren't based on the same as their hourly holiday pay).

Still think it's an excellent/pragmatic MO, but have to flag the potential dangers.

Hmm, who's going to remember their last 52 weeks pay? Ceetainly not both of them.

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Replying to lionofludesch:
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By NYB
28th Jul 2021 19:05

These are placed in schools for music. Shouldn’t think they know each other. And earnings £300 a month for example. Very very micro. One is not even registered for NEST they are so low c

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Replying to lionofludesch:
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By Hugo Fair
28th Jul 2021 19:48

Unfortunately most of mine don't have to rely on memory - being unionised and able to call on free help when they don't trust Payroll or HR!
Which is why we take an OCD-like approach to the calcs. But I do like pragmatism, when you can get away with it.

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Replying to Hugo Fair:
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By NYB
28th Jul 2021 20:15

One upside of micro business. No unions involved. Nor Bolshe employees by and large. Think they are grateful to get holiday pay.
Have had a few with Furlough demanding this that and everything else so I have been quite OCD on that.

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By psimonparsons
29th Jul 2021 23:54

Grateful for basic employment rights!

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By tom123
29th Jul 2021 07:58

Does any software cope with this stuff?

Shortly moving to a new role, where all sorts of variable hours things could be possible..

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By NYB
29th Jul 2021 09:22

I asked this some time back on AW and got nil response. My colleague used to handle a payroll of 2000 people and she said the expertise is there for that level to programme something. As I said TUI arent doing it for my ZERO hours contract. They are using 12.07%.

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By lionofludesch
29th Jul 2021 11:08

The thing is .... 12.07% is scrupulously fair to both sides and simple to operate.

Whoever came up with the 52 week thing has clearly never calculated holiday pay before.

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Replying to lionofludesch:
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By NYB
29th Jul 2021 11:19

I understand it was as a result of a tribunal hearing led by some top flash HR lawyer. No doubt an employee in a large firm with large earnings. Lets face it to calculate HP at 12.07% on very small earnings makes little difference one way or another. Even an average of 12 months is workable. But not when someone is paid monthly and you have to work it out weekly by the 52 weeks actually worked. So it means scrutinizing every employee to see where they have missed weeks.

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By lionofludesch
29th Jul 2021 11:59

NYB wrote:

I understand it was as a result of a tribunal hearing led by some top flash HR lawyer. No doubt an employee in a large firm with large earnings.

So, as I said, then.

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Replying to lionofludesch:
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By psimonparsons
29th Jul 2021 23:52

Unfortunately not judged as fair by the court of appeal or BEIS.

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By Hugo Fair
29th Jul 2021 13:23

Yes ... ours does (but at a hefty price). It's not designed for the typical practice and is used predominantly by large organisations with complex needs, who appreciate the benefits to be achieved after substantial investment (in time and money).
Its origins were servicing public sector organisations, particularly the education sector (which obviously includes MATs), so if you're interested please DM me and I'll put you in touch with one of our people ... we don't employ a salesforce you'll be pleased to hear!

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By tom123
29th Jul 2021 20:40

May yet do that, Hugo.
Not in post until 1 September - but will come back to you then.

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By Hugo Fair
29th Jul 2021 20:55

OK ... let me know in meantime (as a fellow Aweb member not prospective supplier) if you have any questions about the systems & processes already in place - or just want to chat about some of the education sector peculiarities that you encounter.
Good luck with the handover at the 'old' job ... and hope you get a rest in between!

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By john hextall
29th Jul 2021 11:41

The current legislation is a triumph of theory over practice. 12.07% of earnings is easy to understand and calculate. If anyone is unhappy enough to take their employer to court over it, good luck to them.

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By psimonparsons
29th Jul 2021 23:50

Guess the challenge is when the employment rights enforcer comes into play and compels the employer in similar way to National Minimum Wage.

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RLI
By lionofludesch
30th Jul 2021 07:17

psimonparsons wrote:

Guess the challenge is when the employment rights enforcer comes into play and compels the employer in similar way to National Minimum Wage.

IF he calls - and that's a big IF - let him do all the work.

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By NYB
30th Jul 2021 08:37

And while he is visiting he can also do the work on Zero contract Furlough calculations as well. Hope he has a lot of time.

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By Leywood
29th Jul 2021 15:48

Wondering if the OP has seen the later responses, after the correcting info from Hugo.

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By psimonparsons
29th Jul 2021 23:48

They are entitled to 5.6 weeks paid annual leave. A weeks pholiday pay is the 52 paid week average ignoring zero weeks.

The 12.07% method some used in the past has been ruled as unlawful not meeting the requirements of the Working Time Directive / Employment Rights Act.

The calculation is complex and some pragmatic choices may be needed to get close to the correct calcs.

Some challenges with monthly pay as the requirements are in weeks.

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By Hugo Fair
30th Jul 2021 10:51

Thanks Simon ... good to see you back.
And as usual a much more concise response than my tendency to waffle a bit!

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