Hear about our trials, tribulations and triumphs as the team at RW Payroll Services in Huddersfield share their experiences on all matters payroll.
Holiday pay – will you be caught out?
What it means and 3 things you need to do now.
We’ve been helping a few clients with the new holiday pay rules lately, and hope you’ll find this topical and useful.
Towards the end of 2014, some new legislation came into effect. If it applies to you as an employer, it is likely to cost you money, either now or at some time in the future.
The origin of the ruling related to a salaried employee who also received commission. The ruling decided that when such a person takes holiday, not only should they receive their salary, but you should also pay them a notional commission amount, to keep their income steady.
Typically, though, the ruling goes on to cover much more than this.
For example, it means you will have to take account of overtime (except for “voluntary” overtime, which means you don’t have to offer it, but if you do, an employee can refuse to work and suffer no consequences).
Prior to the ruling, when someone took holidays, they would receive their normal basic pay. In broad terms, the ruling says that they should now receive, more or less, their average pay (i.e. including overtime and other items).
Of our 100 or so payroll clients, quite a few are not affected, as they pay salaries and rarely, if ever, have overtime or commission. We have helped others with implementing the rules and although there is always the odd exception, most of the calculations are now systemised and run smoothly each pay period.
We’ve worked an example for a fictitious employer with 15 staff on £7 per hour, working a 40 hour week.
If each person regularly works non-voluntary overtime of 2 hours per day at time-and-a-half, then over the course of year this will cost the employer an additional £6,300 plus national insurance, taking the cost to nearly £7,200.
If each person additionally works 4 hours per week at double time, this puts the annual cost including NI up to almost £11,000.
1. Think about the examples above. Is your situation similar? How much would the legislation cost you? In the examples, the extra cost would probably equate to any annual pay awards you were going to give – can you afford to do both?
2. The legislation can look backwards as well as forwards, but there are steps you can take to stop the clock running. Speak to an employment law specialist to decide what is best for you.
3. Be prepared for employees to raise this with you. Think about whether you would rather take the initiative or wait to have your hand forced. Work out the costs either way.
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