Almost all of your staff are legally entitled to 5.6 weeks’ paid holiday per year, which is made up of:
Until 2012, employers tended to only include an employee’s basic pay when calculating the amount to be paid while they were on holiday.
However the case of British Airways plc v Williams & Ors changed all of this.
The ruling determined for the first time that other pay elements which are “intrinsically linked to the performance of the duties” had to be included as well. From this, the principle was born that employees should be no worse off financially from taking holiday.
If your staff are on fixed hours each month or are on fixed pay (salaried) then their holiday pay is simply the same at the end of the month as they would normally have received. Easy.
However, the situation becomes more complicated when your staff do not work fixed or regular hours, or receive commission/bonuses – i.e. they don’t receive the same amount of pay each month. In these circumstances an employer is required to calculate holiday pay by looking back at the worker’s previous 12 paid weeks (known as the holiday pay reference period) to ensure they are not worse off.
Since 2012, the UK courts have decided that this look back must include: wages, commission, bonuses, travel-time allowances, payments related to professional or personal status (eg long service), guaranteed/contractual overtime, overtime that must be worked if requested by the employer, and even voluntary overtime.
Having looked at how much the employee earned over these 12 weeks, holiday pay can then calculated as an average of this.
As an example, your stylist taking holiday will be paid not only their hourly rate, but also an amount of commission that they ‘could’ have earned if they had not had holiday but worked in the Salon instead.
If the stylist takes their holiday in January (when you are typically quieter), their holiday pay could well be more than you would have actually paid them since it will include commissions they made in December (the mad month).
From 6 April 2020, the 12 week look back period increases to 52 weeks, so employers need to have already started keeping payroll records detailed enough to allow this 52 week look-back calculation. This can be quite an admin headache!
Since 2012, a number of cases have gone to court to establish more and more clarity on the requirement. Only this year, the case of East of England Ambulance Service NHS Trust v Flowers and Ors confirmed that all types of overtime must be included in the holiday pay calculation – not just compulsory. This decision reinforced the one in Dudley MBC v Willets in 2018, where voluntary overtime undertaken only once a month was considered enough to be regular and so included in holiday pay.
There’s a lot more detail to this requirement and also numerous issues (such as what to do if you don’t have 12 weeks’ worth of info to look back on), so please contact us if you need to. Also, if you are a Client of Salonfrog and you have our Payroll bolt-on service, this is all taken care of.