HMRC has made changes to holiday entitlement for casual staff on zero-hour contracts and holiday pay for zero-hour staff and staff that receive regular overtime/commission/bonus payments.
UK Law states all workers must receive 5.6 weeks/28 days of leave, which includes bank holidays.
For staff on zero-hour contracts, holiday can no longer be calculated on hours worked. Instead, holiday entitlement is calculated on contract dates.
Calculating entitlement – example 1
Your holiday year runs from Jan- Dec, new employee starts on the 1st January and they are on a zero-hour contract. Under the new legislation, your employee is entitled (regardless of the hours they will work) to 28 days/5.6 weeks holiday if there is no detail of hours or days within their zero-hour contract.
Calculating entitlement – example 2
Your holiday year runs from Jan- Dec, new employee starts on the 15th March and they are on a zero-hour contract with no end date. Under the new legislation, your employee is entitled, regardless of the hours they will work, to 4.67 weeks holiday as there is no detail of hours or days within her zero-hour contract.
Holiday pay also now needs to be calculated on their average weekly/monthly pay not their hourly rate x hours taken as holiday. The government has extended the no. of weeks used to calculate average weekly pay from previous 12 weeks to previous 52 weeks (capped at 104 weeks) in order to stop employees bumping up their average weekly pay.
Calculating average weekly pay for holiday pay
Beth is on a zero-hour contract and wished to take a weeks’ holiday leave starting on 22 March 2021. She is paid at £10.50 and started working for her employer on 1 August 2020.
To calculate how much holiday pay Beth is entitled to the employer must go back 52 weeks to gain an average weekly pay. As she hasn’t worked a full 52 weeks, the reference period that needs to be looked at will be 26 July 2020 –20 March 2021, this equates to 38 weeks.
During this period, Beth worked 1,850 hours, earning £19,425. A week’s average pay for Beth, which must be paid when she takes this week’s leave will be: 1850 / 38 = 48.6842 hours per week.
Method 1 = 48.6842 x £10.50ph = £511.18,
or Method 2 = £19,425 / 38 = £511.18
When calculating the average weekly wage, all previous pay must be included whether it be statutory sick pay or holiday pay.
Staff with regular overtime/commission/bonus payments
When an employee regularly receives overtime, commission or bonus payments in their pay, holiday pay must be calculated on an average pay basis, not paid at basic rate.
Calculating average weekly pay for holiday pay
Bill works 40hrs a week at £10 p/h, however, is regularly paid overtime. To calculate Bill’s holiday pay, the employer must gather how much Bill has been paid over the previous 52 weeks worked, prior to taking his leave.
Bill will be taking a weeks’ worth of leave on 5th April 2021, assuming that he has not any unworked weeks, the reference period to look at would be 5 April 2020 –3 April 2021.
During this period, Bill earned £35,000
£35,000 / 52 = £673.08
For the week Bill is on holiday, he must be paid this amount not his basic wage of £400.00.
Additional information on holiday
- If stipulated in your contract of employment, employees can carry over a maximum of 8 days as long as it doesn’t take them below the statutory holiday entitlement for the current holiday year.
- Due to Covid, HMRC has temporarily amended the legislation to allow employees to carry over a maximum of 2 weeks/20 days into the next 2 years. However, guidance states that there must be a valid reason for holiday not being used i.e., you are a key worker (nurse, carer, supermarket worker etc) and the employer could not let you take your holiday. Employee’s working from home or furloughed staff are not likely to fall into this category and therefore have no grounds not to take their annual leave or ask for holiday to be carried over.
- If you have a use it or lose it holiday policy, as the employer you must take reasonable steps to encourage your employees to use their holiday entitlement in the year.
- Employers cannot buy back holiday from employees if it takes holiday entitlement below the statutory minimum entitlement for the year.
- When an employee books holiday they must provide double-time notice i.e., if they want to book 5 days holiday, they must give you 10 days’ notice. In the same vein, if employers are refusing holiday the same notice period must be applied.
- Holiday days and pay can not be taken by employees when they are receiving statutory parental pay (SMP/SPP/SAP etc)
- If an employee is off sick on SSP, they can take holiday. SSP is still paid to the employee but their pay is topped up to their normal rate for the holiday period.
If you have any specific questions regarding these changes, our team would be more than happy to help – don’t hesitate to get in contact.
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