Last week we explained how to calculate a part time employee’s entitlement to annual leave, but how do you decide what to pay them? In the same way that entitlement to annual leave is calculated by reference to weeks (5.6 weeks under the Working Time Regulations to be precise), it is same with entitlement to pay. For a weeks holiday an employee is entitled to a “week’s pay”. That’s simple then…

For employees who have a fixed rate of pay i.e. an annual salary, it is fairly straight forward to calculate a “week’s pay” – you divide the annual salary by 52 and that is a week’s pay, to calculate a day’s pay you divide the annual salary by 260 (being the number of working days in the year based on a 5 day week). Likewise, where an employee is paid an hourly rate and has fixed working hours a week’s pay is calculated by reference to those fixed working hours at the hourly rate.

However, employees who do not have normal weekly hours/weekly pay are a little more complicated. Where an employee’s pay varies week to week depending on the number of hours worked a “week’s pay” is calculated as an average of all sums earned in the previous 12 working weeks, including any overtime and bonuses paid. If no salary is earned during one of those 12 weeks that week is disregarded and a further week considered. Where less than a week is taken the relevant proportion of the “week’s pay” will be payable. This means that in order to be legally compliant holiday payments will need to be calculated each time holiday is taken.

It also means that banking staff, for example, could end up being very well paid for their annual leave – remember they are entitled to 5.6 weeks in the same way full time employees are. Rolled up annual leave is unlawful under EU law, so bank staff cannot simply be “paid in lieu” as an additional sum to their hourly rate. The reason for this is that the law does not distinguish between bank workers who work the odd day or a couple of days here and there, who one would not expect to take annual leave during those short working periods, and those who work for continuous periods of weeks or months at a time. The practical solution is to draft the contract with the bank worker so that a payment in lieu of accrued annual leave is paid at the end of each period of working (each “assignment”), thereby treating each assignment as an individual short contract, with an overarching general contract setting out the general terms of each assignment. For this to be effective there must be no mutuality of obligation to provide or accept work in between each assignment.

We hope the above is helpful. If you would like to discuss this, or any other employment law problem, please do not hesitate to contact us.



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