Calculating average holiday pay: new reference period
Effective 6 April 2020
From April 2020, the reference period used for determining a week’s pay when calculating holiday pay for workers with irregular hours increased from 12 weeks to 52 weeks.
This increase is to ensure holiday pay more fairly reflects average pay for workers whose pay varies across the year e.g. casual and seasonal workers.
When do employers use this holiday pay reference period?
Where a worker is paid a regular monthly salary, with fixed hours/fixed pay, there’s no need to make a separate holiday pay calculation. Simply pay them their normal monthly amount for months where holiday has been taken.
For those workers paid monthly, but where their pay varies, employers need to use the holiday pay reference period.
For casual workers with no normal hours, including workers on a zero-hours contract, the holiday pay they receive will be their average pay over the previous 52 weeks worked.
A few important things to note:
- If a worker has not been in employment for 52 weeks, their employer should use however many complete weeks of data they have.
- To prevent employers having to look back more than 2 years to obtain 52 weeks’ of pay data, a limitation/cap of 104 weeks was also introduced.
- The reference period an employer uses must only include weeks for which the worker was actually paid. It shouldn’t include weeks where they didn’t work/didn’t get paid.
- ‘A week’ starts on a Saturday and ends on a Sunday (unless workers are normally paid differently to this e.g. Wednesday to Tuesday).
Remember, workers are entitled to a week’s pay for each week of statutory leave that they take. You can learn more about calculating leave entitlement here.