Overtime and holiday pay

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Just wondering how others calculate additional holiday pay due for salaried workers who regularly work overtime.

As I understand, you need to look at the average weekly overtime looking back over 52 weeks (ignoring non-working weeks), starting from the last complete week prior to the week in which the holiday is taken. To do this precisely is actually quite complicated.

I've seen others who just take the total overtime from the last 12 payslips and divide by 48 (as only 20 days of holiday require an overtime top up) to get weekly pay. This seems imprecise but perhaps a reasonable compromise.

What do others do?

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By FactChecker
20th Apr 2024 16:17

The regularity (or otherwise) of the paid overtime is no longer relevant, it is just part of their pay for hours worked.

But I'm not sure whether you're asking how the holiday pay SHOULD be calculated or what other ways some people may be WRONGLY using?
The latter I fear (from observation over the last 30 years or so) can be almost anything - with the only common factor being that they completely ignore whatever the (then current) regs say.

The correct way, as I think you know, at the moment is:

"To work out a week’s pay for someone who’s paid monthly:
* Calculate the worker’s average hourly pay for the last month - by dividing the month’s pay (including overtime) by the number of hours worked in the month;
* Calculate the weekly pay - by multiplying the average hourly pay by the number of hours worked in a week;
* Repeat that weekly pay calculation for each of the last 52 weeks, in order to work out an average week’s pay for that whole period."

This is of course a gross simplification (you've alluded to the concept of different treatment for 4 out of the 5.6 weeks of statutory leave - although few ERs bother with trying to save that infinitesimal amount) - but the point is that it is a fairly simple set of steps, each with a defined algorithm, and so is fairly easy to semi-automate in a spreadsheet (or fully automate within the better breed of payroll software).

The really BIG issue on the imminent horizon (see https://www.accountingweb.co.uk/tax/hmrc-policy/one-of-hmrcs-cunning-dat... ) is the introduction of a new mandatory RTI data item - whereby you will have to report (for every EE in every FPS) the number of 'hours worked' for that pay period!
IF those values were being recorded then I suspect the holiday pay calc would be a lot easier within most payrolls - but of course they aren't (currently). Oh dear, HMRC!

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By paul.benny
22nd Apr 2024 12:58

And just to make it a little more complicated, the regulations are slightly different for employees in Northern Ireland.

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Replying to paul.benny:
By Barbara G
22nd Apr 2024 16:55


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By turchyna582
25th Apr 2024 10:31

Why not simply treat SALARIED staff as Salaried....hours worked are irrelevant?
Everywhere I have worked (salaried) since the 1960's, we were expected to do overtime for NIL extra pay or extra holiday.....we simply arranged 'time off in-lieu'!
No hassles were ever encountered, and no calculations were needed; we received our same 'salary' every month.
Perhaps it is because 'we' were from a different era, where loyalty and sharing the same expectations with respect for each other, were more important than 'keeping tabs' on each other?

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Replying to turchyna582:
By FactChecker
25th Apr 2024 22:02

All of your memories may well be accurate (they tally with mine) ... but you appear to be under a misapprehension with regard to the thread's topic (Holiday Pay).

The new calc 'rules' don't apply to the scenario that you've set out .. so you can still simply "pay the same salary each month" IF the hours worked have no impact on the pay you receive for working.

As to the changes in office culture ... well that's too big a topic (although I know what you mean).

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