How to Calculate Holiday Pay for Variable Paid Employees
From 6 April 2020 the pay reference period for calculating an average week’s pay has been increased from 12 weeks to 52 weeks. A cap of 104 weeks has also been put into place to satisfy the reference period.
Please note when calculating average pay, this excludes weeks where statutory payments have been received in place of wages (i.e. statutory sick pay, statutory maternity or paternity pay etc.).
What was the previous calculation?
Previously, a 12 week reference period was required and there was no cap on how far back the employer had to search, meaning that employers would have too look back as far as necessary until they collected 12 weeks of pay data (excluding weeks not worked or where no pay was received).
What has changed since 6 April 2020?
Now, the reference period has increased to 52 weeks, where employers will use the previous 52 weeks where the worker has received pay in order to calculate their average week’s pay. The employer will only be required to look back over the previous 104 weeks in order to obtain this data.
For workers with less than 52 weeks of pay data, the employer needs to use the complete weeks that the worker has accrued.
Why has the change been made?
This change particularly benefits workers who do not work regular hours during the year and receive variable pay, where the previous 12 week reference period may have only taken into account a period where their earnings are lower. The 52 weeks provides a fairer reflection on the average pay received by workers when calculating their holiday pay.
I would highly recommend reading the comprehensive Government guidance has been released regarding this change, as this includes many useful practical examples.
If you have any queries in relation to this please do not hesitate to contact one of our experienced Employment Lawyers on 01202 525333 for further advice.