Written by Paul Chappell
Published on December 10, 2019
Changes to holiday pay calculations from April 2020

There has been much news floating around the payroll world lately about holiday pay. From high profile Tribunal cases to a change in legislation behind the calculation of holiday pay.

So I thought that as an early Christmas present I would summarise some of the Tribunal cases and what is happening form 6 April 2020.

6 April 2020

What is changing and what do employers need to be aware of with the changes?

The headline change is that the holiday pay reference period will be increased from 12 weeks to 52 weeks.

The changes are designed to ensure that workers in seasonal roles or with abnormal working hours are not disadvantaged when holiday pay is calculated.

The 12 week period does not deal adequately with the peaks and troughs of certain workers. A worker may be in receipt of higher holiday pay if holidays are taken immediately following a peak in wages, but more concerning is the potential for lower holiday pay when holidays are taken when wages/hours worked are lower.

From 6 April 2020 the reference period will be 52 weeks. If a worker has not worked for 52 weeks, the reference period will be the number of weeks that the worker has worked.

For seasonal workers working on a ‘full time’ basis, it may be necessary to go back beyond 52 weeks to establish a 52 week period. However the maximum that employers can go back is 104 weeks. If there are only 49 weeks worked in the 104 week period, then 49 weeks becomes the reference period.

That’s the change coming in in April 2020 sorted, now let’s look at Tribunal cases that have looked at what constitute pay when calculating holiday pay.

Williams v British Airways 2010

This case confirmed that holiday pay should be based on ‘normal remuneration’. British Airways pilots received many elements within normal remuneration linked to the performance of contractual duties

Lock v British Gas 2014

Commission made up around 60% of Mr Lock’s salary based on sales achieved. Holiday pay was based on his salary excluding commission. The European Court deemed that commission should be included when calculating a workers holiday pay

Bear Scotland v Fulton and Baxter 2014

Overtime has long been a grey area for holiday pay. Guaranteed overtime was covered by the Employment Rights Act 1996 and is classed as being within normal working hours. This case took this a step further ensuring that non-guaranteed overtime should also be included.

The Harpur Trust v Brazel 2019

This case concerned a permanent employee working term time. The Court ruled that holiday pay should be calculated  on a 12 week average of hours worked giving the worker holiday pay of 17.5% of annual pay rather than 12.07% for staff working a whole year

Flowers v East of England Ambulance Trust 2019

This case took the Bear Scotland case that little bit further by ensuring that voluntary overtime is included in holiday pay calculations.

All overtime is now, therefore, included in the calculation of holiday pay.

For more details contact Paul Chappell Head of Legislation and Compliance at Dataplan Payroll Ltd on 03331 123456 or contact us