When you take on your first employee, there’s a whole world of employment law to navigate. One of the key responsibilities you do not want to get wrong is paying them correctly. Of course, they need to be remunerated for the work you have employed them for but paying them correctly refers to holiday pay as well!
Calculating holiday pay is straight forward, isn’t it?
If you have employees on fixed hours and fixed pay, then yes, calculating holiday pay is straight forward: a week’s holiday pay is calculated as a workers pay for a week.
When you have employees with no fixed hours (casual work or zero-hours contracts for example) then you need to calculate a week’s holiday pay based on the average pay from the previous 52 weeks where they were paid (or how many weeks they’ve worked if less than a year).
But there’s another element of pay to factor in… bonuses and overtime.
How does overtime factor into holiday pay?
If you have employees who regularly work overtime or regularly receive bonuses or commission on top of their standard rate of pay, then this additional income will need to be factored into their rate of holiday pay. Any employee should receive the same pay when they’re on holiday as when they’re at work.
If the overtime or bonus varies from week-to-week or month-to-month, then you’ll need to calculate the average across the previous 52 weeks (or however many weeks they have been employed). A week’s holiday pay would be paid as a week’s basic pay plus a week’s average overtime/bonus pay.
Is overtime factored into all statutory annual leave?
Statutory annual leave is 5.6 weeks’ paid holiday however overtime, commission and bonus income are based on the EU Working Time Directive. This means that an employer must include overtime or bonus payments in a least 4 weeks of paid holiday.
Need a helping hand with payroll?
Lots of clients chose to outsource their payroll needs to our experienced team. It’s a very important part of running a successful business and as a business grows and employs more people, it can become more time consuming (and stressful).
If there’s one thing we want to achieve for our clients its less stress when it comes to their business finances. Call us today on 01252 612484 for an initial consultation free of charge.
