Director CompleteHR Ltd
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Holiday pay changes come into effect in April 2020

The holiday reference period in the UK for variable working hours, including zero-hour contracts and seasonal workers will change in April 2020.

19th Feb 2020
Director CompleteHR Ltd
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From 6 April 2020, The Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 will make some important changes to how holiday pay is calculated for some.

The change to the reference period comes as part of the UK government’s ongoing actions to increase transparency between employers and employees.

Holiday pay reference period

Under the UK Working Time Regulations 1998, all employees have a minimum of 5.6 weeks of holiday leave every year (calculated pro-rata for part-time employees). For full time staff that normally equates to 28 days per annum and can include the UK bank holidays.

Those with working hours that vary have had their leave calculated using a 12 week reference period. The average pay from the employee’s last 12 weeks of earnings (discounting other leave, statutory payments, or period where no earnings are received) is then used to calculate the pay that they receive for their leave.

What is new?

From 6 April 2020 the reference period for calculating holiday pay for variable hours workers will increase from 12 to 52 weeks.

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. So weeks in which no pay 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.

What to do in preparation?

  • Put procedures in place to record voluntary overtime from 6 April 2020.
  • Assess which pay components will be covered as part of the reference period.
  • Train payroll employees in the new regulations.

The UK government is expected to release official guidance on these holiday pay changes closer to the implementation date.

Replies (8)

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By coops456
20th Feb 2020 10:34

Our biggest client uses zero hours contracts and the workers' hours can vary wildly. We are currently using the 12.07% method; i.e. for every hour worked, the employee accrues 12.07% into their holiday fund.

This method isn't mentioned in the article?

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By rjaustin
21st Feb 2020 15:51

coops456 wrote:

Our biggest client uses zero hours contracts and the workers' hours can vary wildly. We are currently using the 12.07% method; i.e. for every hour worked, the employee accrues 12.07% into their holiday fund.

This method isn't mentioned in the article?

A case last year (Mrs L Brazel v The Harpur Trust (2018)) appears to have changed the landscape and contracted (permanent) zero-hour workers should not have holiday calculated using 12.07% anymore. It can be used for reference purposes to assist workers in estimating their yearly entitlement but not for actual holiday pay payment.

https://www.blakemorgan.co.uk/court-of-appeal-rules-on-calculation-of-ho...

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By rememberscarborough
20th Feb 2020 11:13

I'm confused - we have an agency where we provide temporary care workers who might only work one shift (8hrs) in a 52 week period. If we have to ignore all the weeks they didn't work how do you pro-rata their holiday pay?

Currently we use the 12.07% method but is that being outlawed?

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By rjaustin
21st Feb 2020 15:15

rememberscarborough wrote:

I'm confused - we have an agency where we provide temporary care workers who might only work one shift (8hrs) in a 52 week period. If we have to ignore all the weeks they didn't work how do you pro-rata their holiday pay?

Currently we use the 12.07% method but is that being outlawed?

To answer your question it is suggested if you don't have 52 weeks (or 12 weeks) of data you are to use the maximum number of weeks available to you.

I was considering this scenario when trying to make sense of the legislation recently, as I like to look at extremes at both ends of the scale for context.
And I concluded a worker is this situation who works one 8 hour shift a year, will be entitled to 5.6 weeks holiday x 8 hours = 44.80 hours holiday pay, having only actually worked 8 hours!
If this is happening regularly and can be anticipated, then I would have thought it would be better terminating the contracts and re-employing workers when they are needed, even with the extra admin.

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By Sheepy306
20th Feb 2020 12:51

Always love it when we’re told that guidance will be issued nearer the time, when ‘that time’ is only 6 weeks away.
Luckily I’m fairly chilled about these things but I can’t imagine what it’s like for a worrier.

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keep calm and have a cuppa
By tbk
20th Feb 2020 13:40

I too do payroll for someone using the 12.07% method. Having looked in to it I found this which suggests the 12.07% should only be used for those working regular hours (which is true for my case)

https://www.pureemploymentlaw.co.uk/if-you-use-the-12-07-method-for-holi...

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By scorbett
21st Feb 2020 10:28

But this article states...........

"It is worth bearing in mind that the averaging method applies only when there are no normal working hours. If there are normal hours of work, then holiday pay should be paid at the employee’s usual rate."

Does this suggest that we do not have to accrue Holiday on any overtime hours for employees that work a standard 40hr week Mon to Fri, but can do overtime on the weekends?

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By MSumz
20th Apr 2020 15:32

Hi, we process payrolls for a few companies who have often weeks with no hours, some hours but maybe holiday pay as well and sometimes statutory payments.
As the legislation states that you cannot include weeks with holiday pay or statutory payments does anyone know of any software that can process this. The software we use at the moment has a 52 week average report but when you check it against the figures it isn't correct.
We have considerable amounts of employees on a few of our payrolls and this will take a huge amount of time to calculate manually when the factories close for holiday time etc.

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