Calculating Holiday Pay – the new 52 week reference period
by Tamara Barbeary
The reference period used to calculate holiday pay for variable working hours has changed from 12 to 52 weeks from 6 April 2020.
The change is to ensure holiday pay more accurately reflects average pay for workers whose pay varies across the year, as is the case for many casual or seasonal workers. This will ensure that workers who do not have a regular working pattern throughout the year are not disadvantaged by having to take their holiday at a quiet time of the year when their weekly pay might be lower.
The reference period is the relevant timescale over which the calculation of statutory holiday pay takes place for those employees or workers with working hours that vary.
The new 52 week reference period will operate in largely the same way as the previous 12 week period in determining a weeks’ pay. Where a worker has been employed by their employer for less than 52 weeks, the reference period is shortened to the number of weeks of their employment. As was the case before, the reference period must only include weeks for which the worker was actually paid. It must not include weeks where they were not paid because they did not work. However, a cap of 2 years has been introduced to restrict how far back the reference period may go.
Generally, the law relating to holiday leave and pay remains in a confusing and unsatisfactory state. This is due to the fact that the statutory entitlement of 5.6 weeks’ annual leave (contained in the Working Time Regulations 1998) is made up of 4 weeks derived from the EU under the Working Time Directive and 1.6 weeks additional leave is granted under domestic law. The pay relating to the 4 weeks derived from EU law is interpreted by the case law of the CJEU (The Court of Justice of the European Union), which has frequently been at odds with domestic law particularly in regard to the inclusion of commission and bonuses in the calculation of a weeks’ pay. Often, contracts of employment or collective agreements contain more generous holiday provisions and add an additional layer than are required by the WTR 1998. They may be more generous in terms of the amount of holiday or the conditions for exercising it (or both). Where a worker has a contractual right to annual holiday as well as a right under the WTR 1998, the worker may take advantage of whichever is more favourable.
Tamara Barbeary is our highly regarded Employment Solicitor and is also the Head of the Employment Team in Lennons. If you require her assistance in relation to your employment matter, please contact a member of our Employment Team today on 01494 773377 or email hello@lennonssolicitors.co.uk