Holiday Pay Changes from April 2020

7th January 2020

The Employment Rights Act has increased the reference period used for determining a week's pay when calculating holiday pay for workers with irregular hours from 12 weeks to 52 weeks,

This is to apply from April 2020.

The Government's Good work plan states that the changes will allow greater flexibility for workers in choosing when to take holiday, particularly for those in seasonal or atypical roles that limit some workers from benefiting from their full holiday pay entitlement.

What you need to do 

  • Consider when and how you make the change: For the purposes of holiday pay, many firms begin their year on 1 January. If that is the case, you need to decide whether to change the way you calculate holiday pay on 6 April, or at the start of your holiday year. Christmas brings high levels of overtime for some sectors, which could have repercussions on holiday pay if you switch to the new system in January. It could also mean that people who work the same hours receive different holiday pay simply because of the dates they take leave. If your financial year ends after 6 April, the value of accrued but untaken holiday will increase, meaning you may wish to limit how much holiday can be carried forward. 
  • Adjust your systems: In some scenarios, the 52 week reference period will need to be altered. Helpfully, however, employers do not have to look back any more than 104 weeks prior to the holiday.
  • Review your variable pay policy: If you have not started to include variable pay in your holiday pay, now may be a good time to do so, given that the reference period was one of the few pieces of holiday pay case law that was unclear. If you decide to tackle this, it is important to assess what pay components you will cover and whether this could trigger claims for backdated holiday pay. 

Holiday Pay change for Permanent staff

Holiday pay for permanent staff who only work part of the year – such as term-time workers – should be calculated using their average earnings over a 12-week period and not pro-rated, the Court of Appeal has ruled.

The Brazel v The Harpur Trust case, on which this ruling is based, is subject to appeal and thus may change.

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