Payroll is often demanding. Sometimes, employers are unsure of their responsibilities. Typically, they ask about holiday pay. Must I provide holiday pay for employees who work variable hours? The simple answer? Yes, absolutely!
Statutory holiday entitlement
When does an employee’s holiday entitlement begin? The day they start work. There is a statutory minimum holiday leave entitlement. For a full year’s employment, it is 5.6 weeks. Of course, you can provide more. Simply confirm any extra entitlement in the contract of employment.
Do employees work a standard working week? Or do their hours vary? It makes no difference. It doesn’t change the holiday entitlement.
It’s easy to check an employee’s holiday entitlement. Just use the ‘calculate holiday entitlement’ tool. The calculation is based on a full leave year. Or part of a leave year. This is when the job finished partway through the year.
Holiday pay reference period
So, how to calculate holiday pay for employees who work variable hours? Basically, it depends on the number of weeks worked. How many weeks did an employee work in the last two years? This equates to 104 weeks, on a rolling basis. It’s known as the holiday pay reference period.
For holiday purposes a working week is Sunday to Saturday. There is an exception. Say a worker’s pay is calculated from Thursday to Wednesday. Then, this is period you would use.
Be clear about the holiday pay reference period. It starts from the last whole week ending before the first day of the holiday period.
Three ways to calculate
There are three ways to calculate holiday pay. Here are the typical scenarios.
- An employee has done some work in every week for the last 52 weeks. Calculate the average pay per week for those weeks. Use this as the holiday pay to be paid.
- An employee worked over 52 weeks, but not every week. For each missing week count back from week 53. Up to the maximum of 104 weeks. Also include working weeks to make up the 52 weeks worked. Finally, calculate average pay based on the weekly 52-week average for all those weeks.
- An employee worked less than 52 weeks. Over the full 104-week cycle. Calculate the average based on the weeks worked.
Let’s take option 2 as an example. An employee has been with your business for 18 months. This equates to 78 weeks. For the first 26 weeks he worked full time. However, during the past 52 weeks, up to his agreed holidays, he has only worked for you for 36 weeks. Any previous holiday pay is included in the calculation.
Calculate the 52 weeks employed pay using the next employed weeks. These run from week 53 to week 69. During this period, the employee’s weekly wage was:
20 weeks at £220.00
15 weeks at £110.00
9 weeks at £180.00
8 weeks at £330.00. These weeks include employee overtime.
Therefore, the total pay for the period is £10,310.
We can help
Working out holiday pay for employees who work variable hours? It can be complex. And time consuming. We can help. Talk to our payroll team on 01785 243276.