There have been many publications about the Good Work Plan over the past 18 months and it can be confusing to work through complex, legislative documentation to understand how you stay compliant. While the good work plan covers many topics, this blog aims to take you through one aspect of this, Holiday Pay, and asks the simple question – are you ready for the changes?
In October 2016 the Prime Minister commissioned Matthew Taylor, the Chief Executive of the Royal Society of Arts to look at how employment practices needed to change in order to keep pace with modern business models. This process involved regional tours, speaking to workers and employers in different sectors to understand how different labour markets work. The findings of the Taylor Review were formalised by the government in December 2018 and included 51 of the 53 recommendations set out in the original report.
Regarding Holiday Pay specifically, there were two observations made which the government has now addressed:
“Awareness of Entitlement remains one of the biggest barriers to individuals receiving the holiday pay they deserve” – this is a direct quote taken from the Good Work Plan. As an employer you are legally obliged to give your employees 5.6 weeks holiday per year, this includes full time, part time, zero hours and agency workers. It is important that as an employer, you not only provide the right for employees to book their statutory annual leave but also give them visibility of their entitlement. For many organisations, the holiday pay entitlement process is de-centralised, is not system based and is reliant on individual line managers to monitor. This creates additional risk as it is difficult to accurately monitor and ensure compliance.
Average holiday pay is currently a part of employment rights legislation that ensures the holiday pay an employee receives is a fair reflection of their average weekly earnings. Legal judgements have resulted in employers having to include all normal payments such as regular overtime and commission. The current legislation dictates that an employee must receive holiday pay based on the average of the previous 12 weeks worth of earnings with pay. The Taylor Review however did not think that this went far enough and did not cover workers in seasonal roles or those who are impacted by certain calendar events. Therefore the new legislation, which is effective from April 2020 will dictate that this reference period will cover the previous 52 weeks with pay.
As mentioned above, one of the biggest campaigns the government is launching around holiday pay is regarding awareness, not only for the employer but for the employee. This will include a holiday pay entitlement calculator and a holiday pay calculator. Basically, the government will give employees the tools to check their employer’s calculations, so it is vital that holiday pay is worked out accurately. Many organisations have a vague answer when Average Holiday Pay is asked about; statements like ‘I think we’re above the statutory minimum’ or ‘our employees are paid high annual salaries so it doesn’t effect us’ are common. This blog hopefully highlights that the coming changes will effect everyone, regardless of how much these employees are paid.
The next priority for everyone who reads this should be to ask some more detailed questions about how calculations are made today and more importantly, how they will need to be done in the future. Simply paying your employees a weeks salary for a weeks holiday is no longer enough – if they have had any commission, overtime or any other type of ‘regular’ pay in the last 52 weeks, this needs to be included in the calculation.
Some questions for you to consider are:
In this webinar, P. Simon Parsons, M.Sc FCIPPdip MBCS and Director of Payments, Benefits & Compliance Strategies at SD Worx, outlines the current legal rights to holiday pay, who qualifies and what pay counts. He'll also take a look at why employers are getting it wrong and what they can do to eliminate these errors. Lastly, Simon will then guide you through what the future holds.
Download the ebook: Unexpectedly simple: Outsourcing your payroll is much easier than you think