Holiday accruals are where you earn holiday entitlement based on the number of hours you work. Perfect for employees who have irregular hours.
So how is your holiday entitlement calculated?
1) For every hour you work you earn a percentage of your pay rate towards holiday pay
2) This percentage is in addition to your pay rate, and will be put in to a “pot” of funds which belongs to you
3) This pot of funds will continue to build as you work, it has no expiry date and no limit of how much you can store
4) If you wish to claim your holiday pay, you can request this from your employer
5) They will then issue your entire “pot of funds” to you in a lump sum in your next payslip (this will then have tax and NI deducted)
6) Once issued, your pot of funds balance will reset to Zero and you can then start to accumulate a new pot as you work.
7) If you ever require a P45 your accrued holiday pay will be issued with your final payslip
Guide for Employers
As your employee works more hours the amount they earn towards holiday will be based as a percentage of their Hourly Rate x The Hours Worked.
This allows them a holiday entitlement which is proportionate to the level of work they carry out for you during employment – therefore employees who work more will be able to accumulate more holiday pay.
Employee A has worked for 40 hours this week, at a rate of £10 per hour. Their holiday pay is based on 10% of their earnings.
You should check with your software provider whether there is a feature for Holiday Accruals, as this will calculate all the necessary items for you – including keeping track of each employee’s current balance.
How it works:
1) Their gross pay will be 40 x £10 = £400.
This is the figure which is ran through payroll in their next payslip
2) Their holiday pay is based on their earnings: 40 x £10 x 10% = £40.
This is not directly issued to the employee but is instead held in a “pot of funds” (this is referred to as their Accrued Holiday Pay) which will accumulate as they work more hours. This is additional to the £400 gross salary, and is not deducted from their net pay.
Holiday pay accrued to date: £40
If they work more hours they will then accumulate more holiday fund balance, this is on top of what they previously earned. This will keep building until they claim it:
3) When the employee wishes to take a holiday or leaves employment they can request their holiday pay. The full balance in their “pot of funds” (Accrued Holiday Pay) will then be run through your payroll software to include tax and NI.
Why might you choose to do this?
This is a great way to calculate holiday pay for staff who work irregular hours and also allows them to have the freedom of taking some time off without any cash flow problems. Currently, the rate which HMRC is basing the holiday pay on for 2014 temporary staff stands at 12.07% of the employee’s hourly rate.