Calculating Holiday Pay – Currently the ‘reference’ period in the Working Time Regulations (1998) that is used to calculate holiday pay is 12 weeks.
So, where a worker does not have regular or normal working hours, holiday pay should be calculated based on average weekly pay in the 12 weeks before the holiday date (or if the worker did not work in the previous 12 weeks, then the last 12 weeks they worked/earned).
However, on 6th April 2020 the reference period in the WTR for calculating annual leave increases from 12 to 52 weeks.
This means that if a worker has been employed by their employer for at least 52 weeks, the holiday reference period is extended from 12 weeks to 52 weeks. However, if the worker has been employed for less than 52 weeks, their holiday pay is based on the number of complete weeks they have worked.
The Department for Business, Energy and Industrial Strategy (BEIS) says the intention is that the 52-week reference period will work in much the same way as the 12-week reference period does now, so Employers will have to count back to find the last 52 weeks that a worker worked and received pay (excluding weeks where the worker did not work or receive pay).
The regulations on calculating holiday pay will apparently state though that there is no need to refer back any further back than 104 weeks to find relevant weeks of pay – Employers can use the number of weeks worked within that 104-week period, even if it is less than 52.
This change is part of measures proposed by the Government to improve transparency between employers and workers, and to better reflect the seasonal nature of some casual and zero hours work and ensure workers receive the holiday pay they are entitled to, as fluctuations in pay can lead to higher holiday pay if leave is taken immediately following busy periods of work, and lower holiday pay if it is taken following periods of less work.
The Government plans to produce new guidance for employers on how to calculate holiday pay nearer the time of the change. We’ll update this if we get any new information!
This change will only affect workers whose pay varies.
Employers should ensure they keep records of employee pay for the 52 weeks prior to 6 April 2020, and continue to do so thereafter.
And our advice on calculating holiday for permanent workers with irregular hours here.