From 6 April 2020, the 12 week reference period for calculating statutory holiday pay will be extended to 52 weeks. This extended reference period will apply when calculating statutory holiday pay for casual workers with no normal working hours, for shift workers whose pay varies depending on the time of shift, and for other workers whose pay is determined by their work output.
The Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 come into force on 6 April 2020 and extend the reference period for calculating statutory holiday pay for certain workers from 12 weeks to 52 weeks.
The new 52 week reference period is designed to remove the disadvantage experienced by workers who do not have a regular working pattern throughout the year and who work in sectors with seasonal variations in pay. Such workers are often required to take holiday during quieter periods in the year when weekly pay is generally lower. Applying a 12 week reference period in these circumstances would result in lower holiday pay than if the worker took holiday during a busier and more highly paid time of year. The Good Work Plan sought to address this inequity.
When is a reference period necessary?
There is no need to use a reference period to calculate holiday pay for a worker with fixed hours and pay (for example, a worker paid a regular monthly salary). However, a reference period is needed to calculate the holiday pay of (i) a worker with no normal working hours and whose pay, therefore, varies with the amount of hours worked in any given week; and (ii) a worker with normal working hours, but whose pay varies depending on when the work is performed or on the amount of work undertaken during working hours. In these cases, the employer should consider the pattern of pay previously received by the worker in order to calculate an average weekly pay rate to apply to any weeks when the worker is on holiday.
52 weeks not 12 months
The 52 week reference period starts from the last “whole week” ending on or before the start of the first day of holiday. For these purposes, a whole week is Sunday to Saturday (unless the worker is paid weekly on a different day; in which case, the “whole week” ends on the day on which the worker is paid). Employers should not use 12 months of pay data in order to calculate average pay for these purposes, as the result may differ to average pay calculated on the basis of the 52 week reference period prescribed by the Regulations.
Extending or reducing the reference period
The reference period should only include weeks in which the worker was actually paid. This may mean taking into account pay data from earlier weeks, until the employer has data from 52 weeks in which the worker was paid. The Regulations do, however, state that employers cannot take into account pay received more than two years prior to the taking of holiday in calculating the pay for that holiday. If the employer does not have 52 weeks’ pay data in respect of a particular worker from which to calculate average pay, either because unpaid weeks have been discounted or because the worker has worked for the employer for less than 52 weeks, then the reference period is reduced to the number of complete weeks in which the worker was actually paid.
Holiday derived from EU law
Employers should be aware that four weeks of statutory leave in any holiday year (pro-rated for part time workers) are derived from EU law. The pay to which a worker is entitled during these four weeks of statutory leave is determined by ECJ case law, which requires the inclusion of additional elements of pay that are not necessarily captured in the data collated during the reference period (such as commission payments and bonuses which are intrinsically linked to the performance of workers' contractual duties).
The rather confusing situation remains whereby, in some cases, employers need to undertake three separate calculations of holiday pay: (i) for the four weeks of EU-derived leave; (ii) for the remaining 1.6 weeks of statutory leave; and (iii) for any additional contractual leave.
In recent years, there has been a push, from both Europe and domestic courts, to remove any financial disadvantage experienced by a worker as a result of taking holiday which might disincentivise him from taking such holiday. There has also been a focus on improving the rights of many workers in the growing gig economy, whose working arrangements may not fall into the typical fixed pay for fixed hours model. The recommendation by the Taylor Review to extend the holiday pay reference period is unsurprising, given current trends, and will remedy the disadvantage previously experienced by seasonal workers with variable pay.