Holidays act 2003
The media has been awash with reports over the last couple of days regarding breaches of the Holidays Act 2003. The Ministry of Business, Innovation and Employment Labour Inspectorate has advised that it has investigated 42 employers since 2012. At this stage, investigations into 20 employers have been concluded, with breaches of the Act identifies in 8 cases.
The calculations of holiday pay under the Act require payment of the higher of the ordinary earnings of an employee, taking into account all payments which form a regular part of an employee's pay, or the average amount that the employee earned over the 12 months prior to the calculation (or such lesser time that the employee has worked). These calculations are designed to take into account the fact that employee may work variable hours or receive variable pay (due to entitlement to commission and overtime payments, for example).
The Labour Inspectorate has identified that many payroll systems may not be calculating entitlements in accordance with the Act. In particular, the Labour Inspectorate has warned against "set and forget" systems where holiday pay is calculated on the basis of the employee's contract terms without reference to any variations which occur. It is necessary to ensure that the payroll system takes into account variations in hours and pay and that regular reviews are undertaken.
In addition to their investigations, the Labour Inspectorate is working with payroll service providers to improve systems. In light of the investigations by the Labour Inspectorate and media interest, we reccomend taking a proactive approach by reviewing payroll systems to ensure that calculation of annual holiday pay is in accordance with the Act. we can assist with any questions you may have regarding compliance with the Act or your wider obligations as an employer.