How to easily calculate 52 week averaging for holiday pay

Lady on phone in front of laptop | How to easily calculate 52 week averaging for holiday pay

As an accountant, bookkeeper or bureau in the UK, you’ll know that law around holiday pay continues to evolve. Almost all workers are legally entitled to 5.6 weeks’ paid holiday a year, and if full-time employees on fixed hours and pay take a weeks holiday on a monthly salary, they would receive the same pay at the end of the month as normal. 

While holiday pay seems fairly straight forward on the face of it, the situation becomes more complicated if an employee doesn't work fixed hours, have overtime and doesn’t receive the same amount every pay period. 

Referencing the holiday pay guidance, managers calculated holiday pay for employees with varying hours worked out average pay over the the previous 12 weeks. From 6th April 2020, they now have to refer to an average of 52 weeks.

With regulations now stating that regular overtime and commission payments need to be included in holiday pay, this resource will help you to understand what this means for your accounting/bookkeeper firm or bureau, what you need to consider and how to calculate 52 weeks average pay for your clients easily.

What does this mean for my accounting/bookkeeper firm or bureau?

As a trusted provider in the eyes of your clients, it’s essential that you and your clients pay employees with the right amount of holiday pay. Getting it wrong should not be an option because employees can bring claims against employers who fail to pay them the correct amount of holiday pay. To make sure calculations are correct, and prevent costly problems in the future, consider:

Reviewing holiday pay procedures

Now is the time to rethink your current processes when calculating holiday pay. Have you got an efficient HR or payroll systems in place to calculate holiday pay with 52 week averaging and to remind employees of their holiday entitlements? 

If you and your clients are still using spreadsheets and multiple systems, this is a huge spanner in the works. It gets complicated and takes up a large amount of your and your clients time when manually updating calculations dependent on unique scenarios e.g. when employees have worked for less than 52 weeks or when voluntary overtime needs to be monitored.

Reviewing payroll

For employees who don’t have fixed hours and have various pay, you and your clients should only use weeks in which the employee worked. If the employee didn’t work in the last 52 weeks, count back another week to have 52 weeks in total. The furthest to count back is 104 weeks.

If you and your clients’ are still calculating holiday pay manually, consider a payroll system that can do that for you.

Outlining strategy

Consider how you and your clients can minimise the risk of a claim on inaccurate holiday pay. With ever-changing legislation it’s important to decide what will be done about holiday pay calculations in the future, and how to prevent underpayments. Getting the right tools at hand may help you and your clients automate calculations and compliance in the future.

Introducing the 52 week averaging functionality in KeyPay

Manually calculating holiday pay can be a headache-inducing process, especially with all these changes to keep up with. With KeyPay, your accounting/bookkeeper firm and bureau can save time, and prevent errors that can be easily be avoided.

How does it work?

Set up pay categories

Using KeyPay, you and your clients can set up the pay categories as part of the holiday pay calculation. Create a leave category/template and select the calculation method as 52 week average.

Add your employees to that leave template and the system will do the rest.

Easily Create leave category/templates

When a user pays the worker holiday pay within the pay run, the system will automatically calculate the average amount of holiday pay based on the historic data held.

This calculation can be viewed and edited so the user has the option to add or amend that data being used to calculate the holiday pay. 

Add employee to leave template

When the pay run has been finalised, a snapshot of the calculation is held against the employee so the user can see how the holiday amount was calculated.

We are constantly developing KeyPay and keeping up with legislative updates to help accountants, bookkeepers and bureaux stay compliant and save time. We are super excited to announce that in addition to the weekly and fortnightly 52 week averaging, we now offer four weekly and monthly 52 week averaging calculations! 

Want to learn more about KeyPay’s holiday pay tool? See our support article or speak to our team.

Disclaimer: The information in this article is current as at 02 August 2022, and has been prepared by KEYPAY LTD (company number 11417566) and its related bodies corporate (KeyPay). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. The Information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. KeyPay does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising either directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and to seek professional advice before making any decisions or relying on the information in this article.
Justine Yuen

UK Content Specialist

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