30 Sep 2019

Calculating holiday pay if using 52 week rule

MHA Monahans 52 week rule 1268855

Commencing 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 are being treated equally and fair.

The Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 bring into force from April 2020 (in Great Britain) a change to help ensure that those workers in seasonal or atypical roles get the paid time off they are entitled to.

The current Pay reference period only looks back at successful weeks of earnings up to a maximum of 12. However, if there are weeks of annual leave, statutory payments or nil earnings – these weeks are disregarded, and the employer has to count backwards until they have what is referred to as 12 successful weeks of earnings. The new rules will allow employers to go back up to 52 weeks or the equivalent weeks available, if they have not been employed for a year up to the point of taking annual leave.

There are always questions, as there are with all payroll changes; the most obvious one being - how will this work? Will my software assist, 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? These are just some of the questions and, as you can appreciate, more will be raised over time.

The Department for Business, Energy and Industrial Strategy (BEIS) have said that "the 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."

This BEIS response indicates that Employers are looking for 52 weeks of employment and earnings for the calculation of holiday pay. This raises more questions in relation to crossing over tax years; and can my software calculate from 1 year to the next, or are Payroll Professionals expected to calculate this process "manually"?

Further guidance is expected to be published.