Holiday pay crackdown approaches with half of employers open to errors
Paid holiday or annual leave is a long-established and fundamental employment right. It supports workers’ health and wellbeing, helps people balance work with family life, and contributes to a productive and resilient workforce. Many employers do the right thing and make every effort to comply with the law. However, new research from RSM shows that the majority may leave themselves at risk of falling foul of new compliance efforts from the UK’s government.
Where workers are not provided holiday entitlement and holiday pay, this can leave individuals out of pocket, undercut responsible businesses, and undermine confidence in the labour market. Make Work Pay is the government’s new consultation on holiday pay compliance and enforcement. Set to close in September, it aims to help build a compliance and enforcement framework that is fair, proportionate and effective for both workers and employers – with proposals focusing on supporting businesses to comply with the law wherever possible and taking firmer action where necessary.
Ahead of that, RSM’s Workforce Survey found 56% of businesses pay all types of holiday pay at the same rate, suggesting many could be making errors that leave them at risk of enforcement action by the Fair Work Agency, from next year. While 61% of employers said they use bespoke software tailored to their workforce to calculate holiday pay, 33% also relied on their software’s default settings, and 11% calculated it manually, an approach which is likely to result in mistakes.
Chris Robson, employment tax partner and fair pay lead at RSM UK, said, “Holiday pay can be a very complex area to get right, and the buck stops with the employer, regardless of what third party payroll providers or software systems may be used. Whereas many have in the past relied on default software offered, employers now need to consider what the new rules are and how these apply to their workers… While initial enforcement is not anticipated to be as hard hitting as the current National Minimum Wage (NMW) enforcement, we anticipate the Fair Work Agency will likely mirror the approach taken on enforcement of the NMW, with large fines and public naming of employers that are found to be in breach of the rules.”
Amending these issues may be contributing to a wider concern among employers that they will face ‘rising costs’ in the next 12 months. Alongside a rise in the minimum wage, leading to 54% of bosses worrying salary expectations would increase, 49% cited rising costs – which might include fair rates of holiday pay for their staff – as being a top worry.
The changes to holiday pay compliance come as part of the wider Employment Rights Act – marked as one of the most significant shifts in UK employment law in decades. Part of this process will be the new Fair Work Agency, with a remit to create a level playing field for employers while “ensuring workers get the rights and protections they are entitled to”.
RSM also polled business leaders to see which of these changes concerned them most. Top of the list was workplace sexual harassment protections – which 29% of bosses said they were “most concerned about”. The same number said improved flexible working rights were also a top worry.
Chris Robson concluded, “We’re encouraging all employers to check their holiday pay systems and processes to ensure full compliance ahead of the Fair Work Agency’s enforcement next year, and not simply rely on standard functionality or calculations offered, which do not take the new rules into account. We’d also encourage them to take this opportunity to respond to the government’s consultation and have their say on the Fair Work Agency’s enforcement approach.”
