Holiday pay changes affecting schools

Two recent changes relating to the treatment of holiday pay are important for schools and academies to note.

Calculating Holiday Pay
First, holiday pay has been subject to a recent rush of tribunal and court judgments on how it is to be calculated.

Guaranteed and normal non-guaranteed overtime must be included in the holiday pay calculation.  This covers overtime which an employer is obliged to offer (guaranteed) and where there is no obligation to offer, but if it is offered then the worker is obliged by their contract to work overtime (non-guaranteed).

There is still no definitive position on voluntary overtime, but a key consideration is that where voluntary overtime is a normal part of an employee's working pattern, where working hours may vary, then holiday pay is to be calculated by working out the average pay received over the previous twelve weeks prior to the holiday, i.e. it is a changeable sum calculated by reference to the hours worked in that period.

Work-related travel generally refers to travel for work purposes other than the usual commute to the place of work.  Where an additional allowance is paid for work related travel (not including out-of-pocket expenses such as petrol and rail fares) then such payments will need to be considered when calculating holiday pay.

These changes to the way in which holiday pay is calculated caught many employers unawares and raised concerns that significant claims for historic underpayments would be made.  The Deduction from Wages (Limitation) Regulations 2014 caps backdated claims for deduction from wages for holiday pay for claims brought after 1 July 2015.  The limit is a maximum of two years.

Holiday Pay and Sickness
Annual leave continues to accrue during any period of paid or unpaid sick leave.  Workers on sick leave have an option to carry over untaken holiday without limit, or to specify a period when they may be paid annual leave, notwithstanding their continuing sickness absence.

Saving these circumstances, the general rule is that annual leave must be taken and cannot be paid in lieu.  However, this only applies to the statutory element of annual holiday (the 5.6 weeks calculated pro-rata).  Anything in excess is a matter for agreement in the contract of employment.

On termination of employment all outstanding statutory holiday pay accrued but not taken must be paid.

Accounting for Untaken Holiday Pay by Academies
Changes to the academies financial reporting requirements means that from 31 August 2016, academy trusts are required to include a provision in their annual accounts for untaken holiday pay.  Depending upon when your holiday year runs, this may create an additional liability for reporting purposes, in practical terms it is simply a timing point as the entitlement would be paid when it is due.  However, where finances are tight, it could result in reporting a deficit position, with the attendant EFA attention.

Academy trusts will have inherited their holiday periods where staff transfer.  For teaching staff holiday periods will often follow the academic year, with accrued holiday taken during the summer break such that no outstanding entitlement will exist at year end, unless there is a specific agreement to carry forward any holiday entitlement or you are accounting for accrual during periods of sickness absence.

Support staff may retain a holiday year which runs to March and accordingly you will need to consider whether your payroll system readily enables you to extract the relevant financial detail for your accounts.

September 2015