When employees take annual leave, the pay they receive must reflect what they would have earned if they had been at work. Whenever an employee takes annual leave, basic pay will apply to that period of leave (i.e. annual salary divided by 12 months). However, for those employees whose pay varies across the year their holiday pay should reflect average pay.
Therefore where employees receive any qualifying additional payments 12 months prior to taking a period of holiday these should be included in calculating their additional holiday pay (AHP). This requirement only applies to the portion of holiday entitlement guaranteed under the Working Time Directive. This is the first four weeks (20 days) (pro rata for part-time staff) of annual leave booked in any leave year.
Qualifying additional payments
The qualifying additional payments are:
- overtime payments (contractual and non-contractual)
- Bank Holiday payments
- additional hours payments that have been submitted for hours worked beyond the full time hours for the role
- night working payments
- standby duty payments
- on call payments
- sleep in payments
It requires at least one of the qualifying additional payments to have been paid in at least one of the twelve payslips prior to the month in which the period of holiday occurs.
Additional Holiday Pay (AHP) calculation
Due to re-design work in Business World, an interim arrangement has been put in place for the payments for AHP.
HR services will manually calculate AHP using information from Business World. The calculation will not take into account when an employee has taken holiday and applied on a month by month basis. Instead, these calculations will be undertaken twice a year and additional holiday pay will be paid to employees in November and May. This is due to the majority of the qualifying payments being paid a month in arrears, for example, claims for September are paid in October.
Therefore the 12 month reference periods that will be used to calculate the holiday pay will be as follows:
|12 month reference period||Payslips||Pay period|
|October to September||November to October||23 November|
|April to March||May to April||23 May|
The payment will be shown on an employee's payslip as 'AddHol Pay'.
The AHP calculation for the interim arrangement for payment twice a year will be based on a daily average of qualifying payments multiplied by a half year statutory holiday entitlement (10 days). This will be pro rata for part-time employees ie contracted hours / full time hours for the role * 10 days statutory leave.
The daily average of qualifying payments is calculated as follows:
- add together any qualifying payments paid in the previous 12 payslips to get the total year figure
- divide the total year figure by 240 to get a daily average
- multiply the daily average by the number of days of holiday entitlement
Example of AHP calculation
G7 full time employee (37 hours per week), books 10 days (74 hours) holiday in September. Previous twelve payslips are reviewed for any relevant payments.
Based on the information from the payslips the following calculation is made:
|Total relevant payments||£2664.97|
|Daily average||£2664.97 / 240||£11.10|
|Holiday pay||£11.10 * 10 days||£111.00|
The employee will therefore receive £111.00 as an additional holiday payment.
For advice on this matter, contact your Senior HR Adviser.