Recent feedback from the Department for Business and Trade highlights significant developments in payroll and holiday entitlements.
Changes to the holiday entitlement calculation
The UK Government has decided against implementing a 52-week reference period for calculating holiday entitlement.
Instead, holiday entitlement for employees with irregular hours or those working part-time will now be calculated at 12.07 per cent of the hours worked during a pay period.
For instance, an employee working 25 hours in a monthly pay period will accrue 12.07 per cent of these hours as annual leave. Therefore, in this case, the individual will have accrued 3.0175 hours of annual leave for this pay period.
Fractions of hours will be rounded down if under 30 minutes and rounded up to one hour if 30 minutes or more. This method simplifies the calculation process for businesses with variable employee work schedules.
Maintaining the existing holiday pay structure
The existing holiday pay framework, as outlined in Regulation 13 and Regulation 13A, will remain unchanged. Employees will continue to receive:
- Four weeks of holiday at their usual pay rate
- An additional 1.6 weeks of holiday at their basic pay rate
This decision ensures consistency and clarity in holiday pay calculations for both employers and employees.
The introduction of rolled-up holiday pay
Rolled-up holiday pay will now be permissible, but only for employees with irregular hours or those working part of the year. This change offers businesses greater flexibility in managing holiday pay for these employee categories.
Implementation timeline and legal obligations
No specific dates have been set for the implementation of these changes, as they require legal action. Businesses should remain vigilant for further updates and prepare to adjust their payroll systems accordingly once these changes are enacted.
Influence and expectations of the CIPP
The Chartered Institute of Payroll Professionals (CIPP) has played a vital role in shaping these updates, with many of their recommendations being incorporated by the Government.
Nonetheless, both the CIPP and businesses must wait for additional guidance from the Government on the practical application of these updates.
Implications for businesses
These adjustments necessitate changes in the calculation and payment of holiday entitlements, especially for employees with irregular hours or those working part-time.
It is advisable to frequently consult the CIPP’s policy hub and other reliable sources for the latest information and guidance. Staying informed is essential for smooth payroll operations and compliance with legal requirements.
If you would like further information or assistance in adapting to these new payroll updates, please get in touch today.