Average holiday pay – make it work for your business

news article

Sep 29 2016

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With the summer season in full swing, and Christmas looming in the not-too distant future, at this time of year many HR professionals’ thoughts naturally turn to annual leave and holiday pay.

With the introduction of average holiday pay legislation, working out individual entitlement rates now involves far more complexity than in previous years. In November 2014, the Employment Appeal Tribunal ruled that holiday pay should be calculated to reflect non-guaranteed overtime. Whilst the decision was widely welcomed by employees at large, many businesses expressed severe concerns over the additional costs involved and the potential for workers to submit back-dated claims.

For HR and payroll teams, concerns centered chiefly around how best to effectively, efficiently and compliantly handle average holiday pay entitlements going forward.

With this in mind, it is recommended to keep certain factors in mind when considering average holiday pay, including; the advancement of case law, how certain holiday calculations are made and why, different types of overtime and the working time directive. Correctly recording exactly which type of overtime different employees are undertaking is hugely important, as there is no definitive case law currently surrounding voluntary overtime. Similarly, HR professionals need to keep in mind that average holiday pay only applies to the working time directive’s statutory 20 days, and not the 28 days outlined in UK employment law.

Helpful hints for managing average holiday pay:

  • Review all current annual leave arrangements, ensuring that all pay factors are intrinsically linked to your employees’ usual performance of tasks are now calculated within holiday pay.
  • Ensure that a clear breakdown of what has been calculated is included on all employee pay slips.
  • Remember that if an employee’s working hours change throughout the year, their leave entitlement and resulting average holiday pay calculations should also be recalculated accordingly.
  • Review any technology currently used to manage your payroll. Ask yourself: has it evolved in line with payroll changes? Is it flexible enough to enough to tackle any future developments? Can it be configured to suit the specific requirements of your business? If you cannot answer ‘yes,’ to these questions, then your software is no longer fit for purpose.
  • Produce and distribute regular annual leave analysis reports to monitor the status of holidays taken – be proactive!

Finally, if in doubt err on the side of caution. Speak to your system provider for any specific guidance and be prepared to acknowledge where you may have knowledge gaps. If you are worried about the complexities of fully ensuring legal compliance, then ensure that you ascertain certified legal advice. Payroll compliance can be a minefield for businesses, but it is important to remember that there is plenty of help and support out there.

Are you concerned about effectively administering holiday pay to employees, whilst simultaneously maintaining legal compliancy? If so, investing in flexible, configurable HR and payroll software could help to streamline time-consuming administrative tasks whilst also improving wider company processes. If you’re interested in a FREE demo, call us directly on 0113 230 8600, or visit our website to discover exactly what our HR and payroll software could do for you.


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