Pay as you go Holiday Pay

A business engaged a new worker on a “fixed term part-time” basis because of the uncertainty and frequency of available work, and decided to use the “pay as you go” holiday pay method of calculation - 8% of gross earnings.
After 12 months the employee had regular shifts and pattern of work, and had therefore become  a permanent part-time employee although neither party formally recognised the change. After 7 years the employee left and raised a grievance alleging that the company had wrongly paid holiday pay with her weekly pay over the 7 years, claiming payment for annual leave. She also claimed pay for a number of alternative holidays to which she had become entitled, and which were neither taken nor paid out on termination.

Section 28 of the Holidays Act 2003 sets out when holiday pay can be paid with an employee’s pay; 

the employee must be on a fixed term agreement for less than 12 months or the work is so or intermittent or irregular that it is impracticable to provide the employee with 4 weeks annual leave.  

The parties must also agree, and reflect this in the employment agreement.  The Authority found there was no evidence of agreement and the company continued with the pay as you go method of calculation for longer than the 12 months permitted by law.

The Authority in its judgement required the company to back pay the employee’s holiday pay accrued in those 7 years – a sum of $16,451.12. This in spite of the fact that she had actually already received holiday pay - albeit in the form of 8% of gross earnings over time.

The issue of the alternative holiday claim arises when a public holiday falls on a day that would otherwise have been a working day for an employee and the employee works on any part of that day; then the employee must be provided with an alternative holiday. The Authority determined that payment for 22 alternative holidays was owed, to the sum of $5.434.00.

The Authority also ordered the company to pay the employee $3,500.00 as a contribution to costs.

A message to businesses – 

Fixed term engagements must be agreed to in writing and end on the date specified in the employment agreement. Employment categories can change to permanent employment without either party really giving it much thought or attention.

“Pay as you go” can only be used for employment that will not exceed 12 months or at a time when it is near impossible to identify what 4 weeks annual leave would look like. Making this mistake can be very costly - as in this case.  Remember, the employee had already received 8% holiday pay on the gross income received weekly. And, payment for alternative holidays must be made on termination.

Check all employment agreements that you have in place and be sure that what started as casual or fixed term when a pay as you go arrangement was applicable, has not morphed into something permanent without the changes being reflected in your HR and payroll areas.

Paddy Battersby : Battersby HR Consulting : 09 838 6338 :

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