Calculating Holiday Pay Using the 52 Week Reference Period
Starting on April 2020, the holiday pay reference period will be increased from 12 to 52 weeks. This is to ensure that the calculation of holiday pay for employees in various roles ensures all are being treated equally and fairly. This change is as a result of the Employment coming into force from April 2020 (in Great Britain). It is a change that will help ensure that those workers in seasonal or atypical roles get the paid time off they are entitled to. This article gives more details.
What do the New Rules Mean?
The current Pay reference period only looks back at successful weeks of earnings up to a maximum of 12 weeks. However, if there are weeks of annual leave, statutory payments or nil earnings during that period then these weeks are disregarded, and the employer must count backwards until they have what is referred to as 12 successful weeks of earnings. The new rules will allow employers to go back for up to 52 weeks, or for the equivalent weeks available. if they employee has not been employed for a year up to the point of taking annual leave.
As with all payroll changes, there are always questions. For example: how will the new system work? Will my existing payroll software be able to accommodate the change? Will it be a year regardless of how many weeks in that year the employee has been paid? Are we looking for successful weeks only or do all weeks count towards the calculation? There will be other questions too.
In answer, the Department for Business, Energy and Industrial Strategy (BEIS) have said that their plan is that the 52-week reference period will work in much the same way as the 12-week reference period. Employers would have to count back over the last 52 weeks that a worker worked and received pay. Any weeks that a worker did not work or receive pay will be excluded. If there are fewer than 52 weeks worth of pay information, then the employer would have to include as many whole weeks of pay information as are available.
The Department’s response indicates that Employers are looking for 52 weeks of employment and earnings for the calculation of holiday pay – this therefore raises more questions in relation to crossing over tax years and begs the question can existing payroll software calculate from 1 year to the next or are Payroll Bureaux expected to calculate this process ‘manually’?
Watch This Space
As outsourced payroll experts you can be sure that will be keeping a close eye on this area and will be fully up to speed well in advance of APRIL 2020. Contact us for help and advice.