Changes to Holiday Pay Calculations

All workers are entitled to 5.6 weeks of paid holiday each year, and the supreme court has clarified how this should be calculated. Ultimately this comes down to the employees’ earnings during the weeks that they have worked and excluding the weeks they have not. This means the standard pro-rata formula or the ‘conformity principle’ of 12.07% that has been commonly used is no longer a lawful calculation for part-year workers’ holiday pay.

This will effected employers and how they calculate holiday pay for their staff. But don’t worry, we have just posted a blog on our website explaining everything employers need to know.

The entitlement to 5.6 weeks of paid annual leave was set out by The Working Time Regulations 1998, with a ‘week’s pay’ defined by The Employment Rights Act 1996 as a worker’s average weekly remuneration in the period of 52 weeks, ending on the last day of a week on which the calculation is made.

This act also states that weeks where no payment has been made to a worker should be discounted from the calculation of a ‘week’s pay’.

As the recent ruling has clarified, holiday pay for part-year workers will need to be based on their average weekly pay over the last 52 weeks, excluding any weeks they did not work. Remuneration of earlier weeks should be taken into account to bring the total up to 52 weeks, and if a worker hasn’t been with a company for a full year, then an average of the weeks worked should be used.

In many instances, this could mean more generous holiday pay for part-year workers.

How this affects employers

Employers who engage workers on zero hours contracts or workers who don’t work every week should now check holiday pay calculations and written contracts to ensure they remain compliant with the law.

Contracts should be written to reflect the above, and any reference to the 12.07% pro rata holiday calculation or the so-called ‘conformity principle’ should be removed to reflect the new method for calculating holiday pay.

There is also the potential for employees or former employees to make claims for backdated holiday pay if holiday pay has been calculated using the old method, so it would be wise to amend contracts and pay calculations quickly to reduce the chance of further claims being made. There is a three month time limit for such claims so these would likely be limited to current employees, or those who have recently left.