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Pegasus Blog

New Holiday Pay Ruling


November 20, 2014

The Employment Appeal Tribunal passed an important new ruling on Holiday pay on 4th November. This ruling was in favour of including overtime and commission when calculating holiday pay.

What does this actually mean?

Holiday pay must now reflect the worker’s actual normal earnings rather than just basic salary. If a worker’s earnings vary depending on the amount of work they do or the times that they carry out that work, their holiday pay should now be based on an average of their actual earnings calculated over a 12-week reference period.The type of payments that need to be included in the calculation include overtime payments, shift payments (eg unsocial hours payments) and travel supplements (although reimbursement of out-of-pocket expenses would not be included).

How does this affect businesses?

All employers must now take into account overtime when calculating holiday pay. Employers are encouraged to prepare for this new ruling to ensure their business and employees are covered.Opera 3 Payroll and Opera II Payroll already cater for average week holiday pay and the accumulation of a holiday pay fund, by offering the holiday option (hol’able) on Payment Profiles:

Holiday Pay Averaging:

Where Holiday Pay Averaging is in use, the Payment Profiles included in the calculation of an employee’s average holiday pay are those with the "hol’able" option selected. To include other payments, such as overtime, in the calculation of the average holiday pay, please ensure that the associated Payment Profile has this option selected. Holiday Pay Averaging can be enabled in the Payroll Set Options form.

Holiday Pay Fund:

The "hol’able" option is also used where you have chosen to accumulate an employee’s holiday pay fund as a percentage of pay. To include other payments in the calculation of the holiday pay fund, please ensure that the associated Payment Profile has this option selected. Holiday pay funds are accumulated by use of an H type deduction.

For more information on Opera 3 Payroll capabilities click here contact us on 0800 919 704 .