Holiday Pay: is it legal?

Holiday Pay: is it legal? Holiday Pay is changing. As a result of two key court cases, the way UK businesses calculate Holiday Pay for their employee...
Author: Leona Copeland
8 downloads 0 Views 496KB Size
Holiday Pay: is it legal?

Holiday Pay is changing. As a result of two key court cases, the way UK businesses calculate Holiday Pay for their employees could be about to change. This guide explains the key information behind Holiday Pay, and covers what you and your business needs to know in 2016.

A background to Holiday Pay There are two key cases where Holiday Pay is concerned. Lock vs. British Gas Mr. Lock, an employee of British Gas, argued that by taking holidays and time off, he was losing out financially, as holiday pay calculations did not take into account elements of his pay such as commission. Fulton vs. Bear Scotland Mr. Fulton also argued a similar case against Bear Scotland, claiming that unfair deductions had been made from his pay whilst taking annual leave, as the company failed to include overtime and other payments associated with his work when calculating Holiday Pay. The results of these cases mean that UK law could soon change to include commission, overtime, and all earnings. This would help ensure that employees are not at a loss financially when taking their well earned time off. The future Although the UK’s current Holiday Pay legislation has not changed as of yet, it is extremely likely that the court cases, and subsequent appeals which ruled in favour of Mr. Lock and Mr. Fulton respectively, could bring about changes to UK law. Many businesses are seeking to get a head-start on these changes in the same way as we saw with the National Living Wage, which came into effect in April 2016.

Call IRIS on 0844 815 5676 or Visit iris.co.uk/holidaypay IRIS & IRIS Software Group are trademarks © IRIS Software Ltd 05/2016. All rights reserved Version 1.0

The legislation affecting Holiday Pay An brief overview of the legislation affecting holiday pay is provided below: Employment Rights Act Employees should be provided with a written statement surrounding the terms and conditions of their employment. There is no guidance surrounding the calculation of holiday pay, other than it should be done consistently. Employees cannot have unlawful deductions of wages i.e. employer taking money from an employee’s wage other than the statutory requirements (this only applies to certain pay elements)

European Working Time Directive All employees throughout Europe are entitled to a minimum of 4 weeks paid annual leave The four weeks associated with the European Working Time Directive is often referred to as statutory leave and cannot be carried over into another holiday year. Employees should be encouraged to take these four weeks as a minimum. The taking of statutory leave is the basis for the appeal raised by Lock in Lock vs. British Gas. UK Working Time Regulations In the UK employees are entitled to a minimum 5.6 weeks of paid leave to take into account bank holidays, which account for the additional 1.6 weeks of paid leave. Call IRIS on 0844 815 5676 or Visit iris.co.uk/holidaypay IRIS & IRIS Software Group are trademarks © IRIS Software Ltd 05/2016. All rights reserved Version 1.0

Compulsory overtime and Holiday Pay What is compulsory overtime?

Compulsory means the employee has no choice but to work the overtime. This includes: Type

Definition

Guaranteed overtime

Contract of employment requires the employer to offer overtime and the employee to work it

Non-guaranteed overtime

The employee is required to work the overtime, but the employer is not required to offer it

Travel allowances

Taxable payment elements made for traveling time

Any overtime that the employer is NOT required to work is considered voluntary and outside of this ruling.

Call IRIS on 0844 815 5676 or Visit iris.co.uk/holidaypay IRIS & IRIS Software Group are trademarks © IRIS Software Ltd 05/2016. All rights reserved Version 1.0

Rules around the calculation of Holiday Pay

1. 2. 3. 4. 5.

Calculated on a 12 week average Applies to overtime and commission Exclude periods of nil payments Exclude statutory payments Applies only to the four weeks holiday associated with the European Working Time Directive, NOT the additional 1.6 weeks in the UK Working Time Regulations

How does this affect holiday pay? The rulings have not been written into UK legislation yet. The government have a taskforce in place to interpret the ruling and detail how it should be implemented.

At present UK companies have 4 options: 1. 2. 3. 4.

Do nothing and wait for further clarification Pay annual leave based on average earnings over a 12 week period Offer a two-tiered holiday pay system basing the first 20 days on average weekly earnings and the remaining 1.6 weeks holidays on static earnings Pay additional holiday pay based on a percentage of all non-guaranteed overtime

It is important to note that the judicial precedents set in the court cases could be overruled or admitted as legislation in the future. Taking this into account, this means that you need to choose an option that will best prepare you for any scenario. This is why we strongly advise against simply doing nothing and being more proactive in your Holiday Pay approach.

Call IRIS on 0844 815 5676 or Visit iris.co.uk/holidaypay IRIS & IRIS Software Group are trademarks © IRIS Software Ltd 05/2016. All rights reserved Version 1.0

Implementing a solution If employers opt to act on the ruling there are a number of things that you need to consider. There is no clear definition of how to calculate the payments, other than an average of 12 weeks. This poses questions such as: • • •

What constitutes a day’s or an hour’s holiday pay? How is holiday calculated for monthly paid individuals? If a statutory payment is included in a pay period, should the whole pay period be excluded from the calculation?

If it isn’t law yet, why should I bother with a solution? The answer to this question is quite simple. It is a proactive way to manage your future and existing employee expectations around being paid for holidays. Employees are entitled to time off and paying them properly for it is extremely important not only for them, but also to ensure that your company is fully prepared if anything is finally defined in law. By paying your employees correctly for the holidays that they take, you will also avoid your own lawsuits for unlawful deduction of wages – the very employment tribunals that began the review of the holiday pay legislation. The IRIS track record for developing legislatively compliant solutions is strong following the most recent RTI and automatic enrolment changes. The new IRIS Holiday Pay Module is available in Earnie and IRIS Payroll Professional software which will save you a lot of time and money in the long run.

Call IRIS on 0844 815 5676 or Visit iris.co.uk/holidaypay IRIS & IRIS Software Group are trademarks © IRIS Software Ltd 12/2015. All rights reserved Version 1.0

What the CIPP are saying

Back in March, we spoke with Helen Hargreaves, Associate Director of Policy and Research at the Chartered Institute of Payroll Professionals to her view on Holiday Pay.



“Holiday pay is important for two reasons. One, because of course it’s the law and you have to give people paid time off; but apart from that there’s a big reason for it, people have to take holidays because if they don’t they’ll burn out. You need it to keep you fresh” “They also really need to look at how they intend to go forward, do they implement the changes now because it’s the law and they should, or do they hold off until the business guidance comes out but then run the risk of being taken to a tribunal.” “We know that you have to include guaranteed and nonguaranteed overtime as well as commission payments when calculating Holiday Pay.” “We would advise businesses to start having a look now at the policies and procedures that they’ve got, and to look at what types of overtime they currently offer and which they currently include in Holiday Pay calculations.”

“Good software is intrinsic to payroll being able to perform these calculations.”

Call IRIS on 0844 815 5676 or Visit iris.co.uk/holidaypay IRIS & IRIS Software Group are trademarks © IRIS Software Ltd 12/2015. All rights reserved Version 1.0



How can IRIS help? We’ve developed the IRIS Holiday Pay Module to help businesses who want to get ahead of the legislation. When you add this module, your IRIS payroll will then automatically calculate the amount of holiday pay due to your employees based on your tailored requirements. Easy Configuration The Holiday Pay module includes options for you to configure your holiday pay scheme, to: • Define pay elements to include in your holiday pay calculation • Define a monthly divisor for the 12 week average weekly earnings calculation for monthly paid employees • Set the default holiday entitlement for enhanced (statutory leave) and contractual leave • Choose periods to exclude from the 12 week average weekly earnings calculation, such as periods that have zero pay or statutory payments • Specify different enhanced and contractual holiday entitlement for each individual employee, if required Automatically Calculate Unlike some other solutions, the Holiday Pay module will automatically calculate and pay the 12 week average weekly earnings for holiday pay as part of the payroll run. This easy-touse process will save you time and reduce errors when calculating employees’ entitlement to enhanced and contractual holiday. There are no complex processes to run and no additional man power needed; it’s all taken care of within payroll. Holiday Pay Calculation Your payroll will have an option to quickly view the holiday pay calculation for an employee showing: • How the average weekly earnings value has been calculated • All pay periods included in the average weekly earnings calculation along with the total earnings • Any pay periods excluded from the average weekly earnings calculation Call IRIS on 0844 815 5676 or Visit iris.co.uk/holidaypay IRIS & IRIS Software Group are trademarks © IRIS Software Ltd 12/2015. All rights reserved Version 1.0

IRIS Holiday Pay Module Compatibility The IRIS Holiday Pay Module is currently available for IRIS Payroll Professional and Earnie Business and Earnie Executive, compatibility with Earnie IQ will arrive shortly. Additionally, if you’re using PAYE-Master or IRIS Payroll Business and would like to use the IRIS Holiday Pay Module, why not upgrade to IRIS Payroll Professional? Call and speak to us about upgrading today. IRIS Payroll Professional IRIS Payroll Professional is flexible RTI compliant and auto enrolment ready payroll software for large companies or companies with complex payroll requirements. The software helps enables you to quickly create bespoke reports and online filing of forms with HMRC. Earnie Business & Earnie Executive Earnie Business is intuitive and easy-to-use with clear screens and straightforward layout. A library of straight-forward reports means you can easily get the information you need. Earnie Executive is suitable for payrolls with up to 1000 employees and is highly configurable so payments and deductions, absence categories and user defined fields can be set-up to meet your specific business requirements.

Customer Testimonials IRIS Payroll Professional “I have absolutely no problems at all. On the whole, it is straightforward which is essential when running a busy office; running payroll without IRIS Payroll Professional would be impossible due to the savings in time it provides us.” Rhonda Smyth, Rylands Nursing Home

Earnie “I would have no hesitation recommending Earnie the support is always very helpful and I have the flexibility to get the information I need quickly and easily.” Kirsty Teather, Q Hotels

IRIS & IRIS Software Group are trademarks © IRIS Software Ltd 05/2016. All rights reserved Version 1.0

About IRIS With 30 years' experience, IRIS provides business critical software and services to the UK SME sector and accountants in practice. Over 90,000 small and medium-sized companies including 18,000 accountancy practices rely on IRIS every day to run their business and collaborate, with over 600,700 employees being assessed for auto enrolment each pay period using the IRIS AE Suite™. IRIS Software Group is the number one solution provider for RTI and its software pays 14 percent of UK businesses that operate under PAYE. All customers receive the greatest choice of RTI payroll software and services managed under the brands IRIS, Earnie and KashFlow. IRIS is renowned for ensuring that all software and services are completely up to date with the latest legislation which means that you in turn as a customer are also kept compliant. We have shown this with the rolling out of RTI and also automatic enrolment. As well as continuously enrolling employees into qualifying pension schemes, IRIS have now developed the IRIS Holiday Pay Module in order to help you calculate holiday pay for your employees.

To see how IRIS can help your business thrive in 2016, get in touch today. Call us: 0844 815 5656 to speak to an IRIS Holiday Pay Expert Visit us: www.iris.co.uk/holidaypay Follow us on Twitter: @IRISPayroll

Legal information This information does not constitute financial, legal or professional advice and shouldn’t be relied on as such. IRIS do not make any personal recommendation or give advice to employers and their workers on how to make decisions. If you are seeking this kind of advice we would suggest speaking with a qualified adviser.

Call 0844 815 5656, or visit iris.co.uk to see how we can help you

Suggest Documents