The law on holiday pay has changed as of 6-Apr-20

An employer cannot include an amount for holiday pay in the hourly rate (known as ‘rolled-up holiday pay’).

If a current contract still includes rolled-up pay, it needs to be re-negotiated.
GOV.UK

Holiday pay comes with the job

If you regularly get paid overtime, commission or bonuses, your employer must include these payments in at least 4 weeks of your paid holiday.

ACAS

Employers must now follow the new law which affects all:

  • Employees receiving regular overtime, commission or bonuses
  • Agency workers and zero-hours workers

The principle is that a worker should receive the same pay while on holiday as they would at work.

Operating Holiday Pay

There are two important aspects of the new law:

  1. When the holiday is taken, the employer will need to calculate holiday pay according to the new 52-week holiday pay reference period
  2. Employees/ workers must actually take their holiday entitlement and not just receive pay instead of a holiday

While some employers operate a holiday booking, approval and record-keeping system (digital or paper), others do not. For example, employers who previously used 12.07% rolled-up holiday pay, may not have used or required, holiday recording.

Because the law has changed, and because all workers must take paid holidays, all employers will now need to introduce a system to record holidays. Specifically, holiday recording must include the following to meet the new legislation:

Employees request holiday

Employers approve or deny requests

Calculate approved holiday pay

Pay the holiday pay on next pay run

The effect of the changes are complex and time-consuming and affect multiple participants – workers, managers and holiday administrators. However, using mobile, online cloud and automation, paiyroll® has been able to completely automate the new legislation.

Automating holiday pay in 3 steps

1. Workers ask for holiday dates

Workers ask for holiday using the free app

Holiday pay is estimated and displayed before and after booking

Accrued holiday and days taken are displayed

Any device or browser can be used and no software is required

Alternatively, bookings can be automatically collected or uploaded from your HR or Time tracking system

Worker holiday request
Manager holiday approval

2. Managers approve holiday

Managers are notified of any requests in My tasks

All holiday information is visible

Can approve or deny holiday

if not approved, the reason can be entered and sent back to the worker

3. Workers view Live payslip

Immediately upon approval, holiday pay is automatically added to the payroll

The software automatically calculates holiday pay in the next pay run according to the rules

Workers can view their Live payslip anytime 24×7 to see holiday pay and all related deductions

Statutory weekly and daily pay is recorded

Holiday pay on Live payslip

Features of holiday pay

  1. Allows the definition of a week be customised e.g. Saturday to Sunday or the normal day of the week for weekly pay schedules
  2. Records every payment made by date to be able to perform the required weekly calculations looking back 104 weeks to find 52 paid weeks
  3. The software can import 104 weeks of historical pay data – critical otherwise it would require 2-years to accumulate enough data to be compliant
  4. Supports fixed and no fixed hours working patterns
  5. Import data from existing payroll, HR, CRM or ERP systems
  6. The software allows you to specify only the Pay Items that need to be included in the holiday pay calculation
  7. If you pay monthly, 2 or 4-weekly, the software can record weekly data
  8. Generates records and reports for each holiday booking on each pay run
  9. Support both accrual and entitlement methods
  10. Unlimited number of holiday schemes for different types of workers
  11. The holiday reset date can be company defined or based on the workers anniversary date per scheme
  12. Bookable days (which days count as booked holidays) per week can be specified per scheme
  13. Holiday buy, sell and carry limits can be defined per scheme

Full details of the new holiday pay legislation is covered in our resources here.

This guide is based on the following sources:

https://www.gov.uk/holiday-entitlement-rights/holiday-pay-the-basics
https://www.gov.uk/government/publications/calculating-holiday-pay-for-workers-without-fixed-hours-or-pay
https://www.acas.org.uk/checking-holiday-entitlement

Disclaimer

The Content presented here does not constitute advice on which you should rely.  It is provided for general information purposes only.  Professional or specialist advice should always be sought before taking any action relating to holiday pay. We make reasonable efforts to ensure that the Content is complete, accurate, and up-to-date.  We do not, however, make any representations, warranties or guarantees (whether express or implied) that the Content is complete, accurate, or up-to-date. Each situation will differ and this guide is not a substitute for legal advice. It must therefore not be relied upon and we are not liable for any loss or damage.