The government has announced changes to holiday pay coming into effect on 6 April 2020.

At the moment where a worker has variable pay or variable hours of work holiday pay is calculated using an average of the pay they have received in the last 12 weeks they have worked.  This reference period is increasing from 12 to 52 weeks.  The Good Work Plan considered that this change would allow greater flexibility for workers when choosing to take holidays, especially those in seasonal or variable roles who often do not benefit from their full holiday pay entitlement.

If a worker has less than 52 weeks service, employers should calculate holiday pay using the number of complete weeks' service they have accrued with that employer at the date of taking the holiday.

The bad news is that employers may need to look back further than the last 52 weeks where there are any weeks in that 52 week period where the worker has not received any pay.  Employers need to consider 52 weeks that a worker has actually worked.  The good news is that the government has imposed a limit on how far employers are required to look back.  Employers do not require to look back any further than 104 weeks prior to the worker's first day of holiday.

Employers should prepare for these changes by:

  • checking that adequate records are retained to allow for an accurate assessment of pay over the extended reference period;
  • checking payroll systems are in place to accommodate these changes; and
  • ensuring that employees have been trained on the new rules so that they are applied correctly in practice.

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