Changes to the reference period used to calculate the rate of holiday pay following redundancy (for those with variable weekly pay): Redundancy Payments Service process
This article is to provide details on how insolvency practitioners should submit the secondary rate of pay for holiday pay to the Redundancy Payments Service (RPS).
As of 6 April 2020, the reference period for holiday pay has been extended from 12 weeks to 52 weeks. This change relates to holiday pay only and applies to both holiday pay accrued and holiday taken but not paid, for all employees with variable pay.
The RPS will still need the 12-week average to calculate all other components.
Process for providing second rate of pay
At present the 52-week rate of pay cannot be submitted through IPUS. The RPS is working on IT changes which will allow the second rate of pay to be included in the RP14A and will send a further update when this is available.
In the meantime, the process for getting this information to the RPS is as follows:
- All RP14As should be submitted as usual, including information at the 12-week average rate of pay.
- Once insolvency practitioners have submitted the RP14A the RPS will email a separate spreadsheet to complete with the 52-week average rate of pay for the holiday pay calculation.
- Please complete the spreadsheet and return it to the RPS within five working days to email@example.com
- The RPS will work with insolvency practitioners to improve this process to make it as efficient as possible whilst it is in operation.
There is guidance online about calculating holiday pay for employees without fixed hours or pay.
Information from claimants – RP1
Whilst the RPS updates its IT systems and online claim form, it will only be asking insolvency practitioners to provide the secondary rate of pay. Claimants will continue to fill in their holiday pay information on the RP1 based on 12 weeks.
The fact sheet and payment letter will make clear to the claimant that the RPS have used an alternative rate of pay to calculate their holiday pay, based on information supplied by the insolvency practitioner.
In the short term, this approach will allow the RPS to continue to process holiday pay payments quickly, and avoid claimants having to separately calculate and submit their rate of pay for holiday pay.
Frequently asked questions
- How do I calculate the 52-week rate of pay?
There is guidance online to help insolvency practitioners calculate the 52 week rate of pay.
- What about payments made since 6 April?
The RPS will be contacting insolvency practitioners for cases between 6 April and now to request 52-week rates of pay.
Any claimant who has received holiday pay already, which should have been higher, will receive a top up payment.
Overpayments will be offset where there are future claims made to the RPS.
- What about holiday taken but not paid prior to the 6 April and post?
Any holiday taken but not paid prior to the 6 April will need to be calculated on the 12-week average. If on or after this date, it will need to be calculated on the revised 52-week average.
- Exactly what information will practitioners need and in what format?
Insolvency practitioners will need to provide the 52-week rate of pay in the spreadsheet. The spreadsheet will be sent to practitioners directly following the receipt of an RP14A with a holiday pay component.
The only information practitioners will need to add to the spreadsheet is the 52-week rate of pay, in column H of the spreadsheet.
Column G of the spreadsheet will tell practitioners the current rate of pay we have for the claimant.
- What if practitioners don’t have the 52-week information for redundancy payments made since 6 April?
Where a claimant has been employed for less than 52 weeks, the reference period is shortened to the number of weeks of their employment.
The reference period must only include weeks for which the claimant was actually paid. It must not include weeks where they were not paid as they did not work. This principle has not changed under new legislation. The legislation also introduces a cap on how far back the reference period may go, which is 104 weeks. Where this gives less than 52 weeks, the reference period is shortened to that lower number of weeks.
- When will practitioners be able to submit the 52-week rate via the RP14a?
Changes are underway to the IT system which are expected to be implemented in the coming months.
While average underpayments are expected to be small, the RPS has decided to introduce this interim solution and make top-up payments to those already paid in order to ensure that claimants receive their correct amount promptly.
- Will claimants have to supply the 52-week data as well?
The RPS is not currently asking claimants to supply the 52-week data. Changes will be made to the RP1 application to allow claimants to provide this in future.
Guidance is being developed for claimants to help them understand the calculation for when the RPS start asking them to provide the information.
- What information will practitioners give to claimants to explain how their Holiday pay was calculated?
The payment letter claimants receive to confirm what payments they will receive has been amended to notify them that the reference period for holiday pay has changed to 52 weeks.
They will be advised to speak to the insolvency practitioner in their case if they do not agree with the rate of pay applied.
- How will this impact Proof of Debts (PoDs)?
Any affected proof of debts will be amended in due course.
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