Changes to the reference period used to calculate the rate of holiday pay following redundancy (for those with variable weekly pay)
The reference period applied to calculations for holiday pay only has been extended from 12 weeks to 52 weeks. This reference period change applies to all employees with variable pay. The change intends to provide additional protection to employees, particularly those with seasonal variations in pay.
The increased reference period was recommended by the Taylor Review of Modern Working Practices, which the Government progressed through the Good Work Plan. This change ensures holiday pay for employees with variable pay more accurately reflects their actual annual earnings.
Further information on the change is available here.
What this means for insolvency practitioners
Insolvency practitioners should now calculate the rate of pay for holiday pay for all employees with variable pay using the 52-week reference period. Advice on calculations can be found here. This change is effective immediately.
How do insolvency practitioners notify the Redundancy Payments Service (RPS) of the rate of pay pertaining to holiday pay
In the short term and in order to ensure there is no disruption to payments being made to claimants, a dedicated email address will be set up for insolvency practitioners to use for the RPS to receive this additional rate of pay data. Please see additional chapter with detailed information on the process for submission along with FAQs.
The RPS is reconfiguring its systems and will work with insolvency practitioners to ensure that the automated interface to the RPS is able to receive this additional rate of pay as soon as possible.
The RPS is also updating its systems for claimants to submit their 52-week pay rate. This will include updating the claimant interface with the RPS.
Claims since 6 April 2020
The legislation came into force on 6 April, however the RPS has only recently become aware of its applicability to the holiday pay element of a redundancy payment. The guidance on GOV.UK has now been updated to reflect this application. The change is expected to have only a small impact, if any, on the overall amount of monies payable following redundancy. Holiday pay typically represents only 5% on average of the total amount paid, and therefore the change to the calculation basis is not expected to have a material impact on overall amounts paid to individuals. However, there may be some claimants since 6 April where this legislative change has not been applied and on the new basis of calculation are due a small top-up payment. The RPS is taking steps to review these payments and will pay any further amounts that may be due.
Where insolvency practitioners are dealing with large numbers of employees, the RPS inspectors will work closely with them to ensure the information is efficiently shared.
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