Strange holiday pay calculation??

Seasonal worker - company has divided her monthly salary by 30 days to get daily rate.

Didn't find your answer?

Daughter working for big ski operator and has been sent home early from France.  Final salary arrived with holiday of 9 days due.   Holiday pay seemed incorrect to me so she asked for a breakdown.  Ski company calculation for holiday pay explained as: 
Monthly salary     divided by     30 days    multiplied by   holidays owed.                Why 30 days?  In payroll, I would work out the calculation as:
Monthly salary  x 12 months divide by 260 working days to get daily rate.  Daily rate mulitplied by holidays owing gives holiday pay due. 
My daughter has queried the calculation and said she didn't work 30 days in the month so why divide by this number and the response was "every payroll has slightly different calculation methods, some use working days in the calendar month, some use annual working days as you’ve put below, and there are other methods besides these – this is the standard calculation we’ve always used for overseas workers, so I’m afraid it is correct."

I have checked the contract, it has standard Ts and Cs, so is this correct?  Can anyone comment on whether they have ever worked out a holiday pay calculation by dividing the monthly salary by 30 days?  

 

 

Replies (33)

Please login or register to join the discussion.

RLI
By lionofludesch
07th Apr 2020 19:26

It won't give the right answer of 5.6 weeks pay (or whatever she gets) so you're right. Having said that, everyone leaves out a key piece of information and the bit you've left out is her entitlement.

Thanks (1)
Replying to lionofludesch:
avatar
By pelicangrey
07th Apr 2020 19:37

Yes - sorry for the omission. Contract says holiday entitlement for the year is 32 days, with a pro rata arrangement for seasonal workers.

Thanks (0)
avatar
By hje
07th Apr 2020 19:40

Why isn't the calculation method clearly defined in the contract? Ive worked in payroll for 20 years and am still seeing new ways of calculating a days pay.

Thanks (1)
Replying to hje:
avatar
By pelicangrey
07th Apr 2020 19:51

It would make more sense to put it in the contract, I agree but in your 20 years of experience, have you seen it calculated by dividing monthly wage by 30 days?

Thanks (0)
Replying to pelicangrey:
avatar
By hje
07th Apr 2020 19:53

In a 30 day month, yes I have.

Thanks (0)
Replying to pelicangrey:
RLI
By lionofludesch
07th Apr 2020 20:09

pelicangrey wrote:

It would make more sense to put it in the contract, I agree but in your 20 years of experience, have you seen it calculated by dividing monthly wage by 30 days?

No. But it would be fine if it gave the right answer. 32 days holiday, based on a 7 day week is less than the statutory minimum. She should have 32 x 7 / 5 = 44.8 days.

Probably someone not understanding what they're doing but she's nearly two weeks short.

Get ACAS on to it if you can't get any satisfaction.

Thanks (0)
Replying to lionofludesch:
RLI
By lionofludesch
08th Apr 2020 10:36

Suppose the employee gets £1000 a month, £12000 a year. Entitlement is 32 days or 6.4 weeks.

Holiday pay should be 6.4 /52 x £12000 or £1476.92.

Worked the employer's way, daily pay is £1000 / 30 = £33.33.

Entitlement is £33.33 x 32 = £1066.66 or 5/7 of the correct pay*.

The reason is that the daily pay is worked out assuming seven days in a week but when the employee comes to get holiday pay, she only gets a five day week.

* The small error is caused by assuming a 360 day year, instead of 365.

Thanks (1)
Replying to lionofludesch:
avatar
By pelicangrey
08th Apr 2020 13:12

:-) That makes complete sense and was the way I understood it.

She worked from 6th Dec - 17th March (when France went into lockdown) so using the same calculation you suggested and the company themselves supplied the fact that 9 holidays were due so that is not in dispute, by using a full monthly salary to find the annual salary and dividing by 260 and multiplying by 9 holidays means that her holiday pay is short by about £200 compared to the way the ski company have calculated it.

I am not sure that the company's response of "that's the way we have always done it so it must be correct" is satisfactory so I will take up your suggestion and contact ACAS. Thank you

Thanks (0)
Replying to pelicangrey:
RLI
By lionofludesch
08th Apr 2020 13:25

pelicangrey wrote:

:-) That makes complete sense and was the way I understood it.

She worked from 6th Dec - 17th March (when France went into lockdown) so using the same calculation you suggested and the company themselves supplied the fact that 9 holidays were due so that is not in dispute, by using a full monthly salary to find the annual salary and dividing by 260 and multiplying by 9 holidays means that her holiday pay is short by about £200 compared to the way the ski company have calculated it.

I am not sure that the company's response of "that's the way we have always done it so it must be correct" is satisfactory so I will take up your suggestion and contact ACAS. Thank you

Maybe point out that it's below minimum holiday rates before you go to ACAS.

If you can persuade them to agree, it'll be quicker.

Thanks (1)
Replying to hje:
avatar
By the_fishmonger
08th Apr 2020 11:02

hje wrote:

Why isn't the calculation method clearly defined in the contract? Ive worked in payroll for 20 years and am still seeing new ways of calculating a days pay.

Just in case that wasn't rhetorical...very few business owners are willing to pay an HR person to draw up the contracts (often citing cost). Inevitably, this leads to various dubious copies being passed around the virtual pub and bastardized to look 'ok'

Thanks (0)
Replying to the_fishmonger:
avatar
By pelicangrey
08th Apr 2020 13:13

Completely agree!

Thanks (0)
avatar
By kiwilondon99
08th Apr 2020 14:32

presume we are talking of a uk payroll + not a french payroll with the working in france

& - assuming UK - to those with the salary £ & payrollers : - where does the 12.07% enter the fray with the above numbers

Thanks (0)
Replying to kiwilondon99:
avatar
By pelicangrey
09th Apr 2020 18:14

Yes to UK payroll dept and salary.

I've only ever used 12.07% for casual and variable hours staff.

Thanks (0)
avatar
By Simon Ness
30th Jan 2021 16:58

Why would 260 days be used to calculate daily pay as this only takes into account weekends and not public hols or annual leave. I have seen quite a few comments re using 260 days but no explanation as to why this makes sense. Using 365 days makes no sense whatsoever as obviously we are not required to work every day.

Thanks (1)
Replying to Simon Ness:
RLI
By lionofludesch
30th Jan 2021 17:20

Simon Ness wrote:

Why would 260 days be used to calculate daily pay as this only takes into account weekends and not public hols or annual leave. I have seen quite a few comments re using 260 days but no explanation as to why this makes sense. Using 365 days makes no sense whatsoever as obviously we are not required to work every day.

You don't think folk should get paid for holidays, then ?

You may find yourself in a minority there.

Thanks (0)
Replying to lionofludesch:
avatar
By Simon Ness
31st Jan 2021 19:06

I think you are misunderstanding my question - using 260 days means that the employee loses out and the employer gains.

Thanks (0)
Replying to Simon Ness:
RLI
By lionofludesch
31st Jan 2021 20:04

Simon Ness wrote:

I think you are misunderstanding my question - using 260 days means that the employee loses out and the employer gains.

Rubbish.

What you're saying is that an employee should get 1/260 of his salary for his day's holiday whilst he's still employed but 1/232 for a day's holiday when he leaves.

Absolute nonsense. No offence intended.

Thanks (0)
Replying to Simon Ness:
avatar
By Hugo Fair
30th Jan 2021 19:44

Whilst I've seen an almost infinite number of algorithms for calculating holiday pay (some of them even defined in an Employee Handbook!), the ONLY thing they all have in common is an understanding that Salary relates to the total number of days that employment recognises as payable - namely:
* days worked + paid holidays (and often other specified instances like days spent on union business or on training and so on).

Whether or not a divisor of 260 is correct or sufficiently accurate is merely a matter of opinion (that should be determined by the employer and then applied consistently) - but to exclude holidays would just be wrong.

Thanks (1)
Replying to Hugo Fair:
avatar
By Simon Ness
31st Jan 2021 19:13

I think it is not for the employer to decide ie it should be determined based on the contract of employment ie what working days is the employer contracted to work. If the employer uses paid days (260) rather than working days ( say 232) then the leaving employee loses out. I don’t think it is fair for an employer to simply say that they use 260 days simply because we have always done it this way.

Thanks (0)
Replying to Simon Ness:
RLI
By lionofludesch
31st Jan 2021 20:05

Simon Ness wrote:
I don’t think it is fair for an employer to simply say that they use 260 days simply because we have always done it this way.

We've always done it this way because that's the right way to do it.

Thanks (0)
Replying to Simon Ness:
RLI
By lionofludesch
30th Jan 2021 20:09

Simon Ness wrote:

Why would 260 days be used to calculate daily pay as this only takes into account weekends and not public hols or annual leave. I have seen quite a few comments re using 260 days but no explanation as to why this makes sense. Using 365 days makes no sense whatsoever as obviously we are not required to work every day.

You need to be thinking about the days folk are paid for, not the days they work.

Thanks (0)
Replying to lionofludesch:
avatar
By Simon Ness
31st Jan 2021 19:04

I can see that you are paid effectively for 260 days but in determining a value for outstanding holiday pay when a person leaves the company then I think working days is more appropriate. So assuming 8 days public hols and 20 days annual leave this would result in 232 working days to be used ie salary / 232 rather than salary / 260.

Thanks (0)
Replying to Simon Ness:
RLI
By lionofludesch
31st Jan 2021 20:00

Simon Ness wrote:

I can see that you are paid effectively for 260 days but in determining a value for outstanding holiday pay when a person leaves the company then I think working days is more appropriate. So assuming 8 days public hols and 20 days annual leave this would result in 232 working days to be used ie salary / 232 rather than salary / 260.

Sorry, I very strongly disagree.

Thanks (0)
Replying to lionofludesch:
avatar
By Hugo Fair
31st Jan 2021 22:37

I find it hard to credit that this 'conversation' is still continuing. If Simon believes that you divide by the number of working days (in his case by 232), then at the end of a complete year the employee will have been paid their full salary (232 x sal/232) even if they haven't taken any holiday yet. So either their holiday when taken will be unpaid - or paying for the holiday will increase total payments to the employee above their full annual salary!
How many more examples are needed to show that his approach is wrong?

Thanks (1)
Replying to Hugo Fair:
RLI
By lionofludesch
31st Jan 2021 23:20

Dunno, Hugo.

It baffles me.

Thanks (0)
Replying to lionofludesch:
avatar
By Simon Ness
01st Feb 2021 21:16

I am struggling to understand what you both are not following. If a monthly salaried person works all year without taking any leave so they have say 20 days leave accrued then they leave they won’t receive a months salary (20 working days) ie they will only receive 20/260 * salary which is much less than 1 months salary. So in this case the employee is much better off resigning 1 month later but taking 1 months annual leave.

Thanks (0)
Replying to Simon Ness:
RLI
By lionofludesch
01st Feb 2021 21:25

OK.

Have you thought about taking this up with ACAS?

Thanks (0)
Replying to Simon Ness:
avatar
By Youareatit
01st Feb 2021 22:07

[quote=Simon Ness] "I am struggling to understand"

Clearly.

+1. Re ACAS

Thanks (0)
Replying to Simon Ness:
avatar
By the_fishmonger
01st Feb 2021 23:52

If your employee did not take any annual leave (unless there were exceptional circumstances), the employer would not have complied with the working time directive.

Leave, both the 20 day statutory entitlement, plus 8 days public holiday should normally be taken in the business' leave year.

Holidays not taken in a leave year are usually forfeit as you are not permitted to pay in lieu. There is a normal limited allowance of one week carry over but that should be contractual.

The exception to pay in lieu is where accrued holiday is unused on leaving. But, as above, it shouldn't be likely that this ever reaches more than a week...or two at most.

Thanks (0)
Replying to Simon Ness:
avatar
By paulwakefield1
02nd Feb 2021 08:20

Wouldn't it be 28 days in your example? So 28/260.

Thanks (0)
Replying to Simon Ness:
avatar
By Hugo Fair
02nd Feb 2021 15:19

I debated (with myself) whether it was worth contributing further to this page ... which currently stands as an exemplar of the GIGO concept.

"If a monthly salaried person works all year without taking any leave so they have say 20 days leave accrued":
If that work-without-holiday constitutes 12 full months then EE no longer has any entitlement to paid holiday, as it is forfeit if untaken. [The rules aren't actually quite that simple but are close enough for the purposes of this post].

"then they leave they won’t receive a months salary (20 working days)":
The average number of weekdays in a month is 21.667 (not 20) ... so in your example they will receive (21.667/260 * salary), which is exactly the same as (salary / 12) ... so your conclusion above is wrong.

My point is that the salary covers both working-time and any non-working-time (as specified in the employment T&Cs) including paid Holidays. In the simple case of a full-time contract for 5-days/week, the period being paid for is usually considered to be 260 days p.a. ... hence (salary / 260) gives the daily rate whether the day in question is worked or is holiday!

N.B: The more mathematically astute will have spotted that there are actually 52.143 weeks in a (non-leap) year, but most employers only take account of this small difference when calculating hourly rates for employees on variable hours contracts (like many in the Education sector). That is a whole different story.

Thanks (1)
avatar
By paulwakefield1
02nd Feb 2021 08:01

Hmmmm. "Holidays" - I vaguely remember them.

Thanks (0)
RLI
By lionofludesch
02nd Feb 2021 10:48

I'll have one last go.

Suppose I'm employing Simon at £26000 for a five day week. He gets 28 days paid holiday in there. £100 a day, Monday to Friday, whether he works or not.

We have this conversation.

Simon : I'm leaving and you owe me 5 days holiday.

Me : OK - £500, then.

Simon : No - £560.

Me : Eh ? How do you work that out ?

Simon : £26000 ÷ 232 x 5

Me : I don't think so. Good day.

Thanks (2)