Holiday pay: How to fix the problem fast

With the furore erupting around the issue of holiday pay, an industry insider says it is necessary to take a deep breath and a step back to make sure the right information is being acted upon, rather than rushing into the situation armed with misinformation and assumptions. He says the issue can be broken down into just two fundamental issues which need to be resolved: the interpretation of legislation and the correct setup of payroll systems.

That’s the view of Warick Heads, National Director of Payroll Services at business services consultancy Crowe Horwath, who says the holiday pay debacle has quickly become murky and inflamed by passions.

“Complicated legislation, in the Holidays Act 2003, is at the root of the issue. This is open to individual interpretation on how to calculate payments for BAPS – that’s Bereavement, Alternative holidays, Public holidays not worked, and Sick leave.”

The trouble is that the calculations for these leave types are different to those used to pay annual leave taken – and, while most payroll systems will provide the calculations, these systems depend on the correct information being entered, including the number of days worked.

“It is therefore essential that these systems are set up correctly and maintained with all pay codes, allowances and bonuses in terms of adding to gross earnings for holiday pay calculations, where applicable, and adding to relevant daily pay calculations, again, if applicable,” says Heads.

Heads says Crowe Horwath has encountered issues of mistaken interpretation and incorrect setup in a number of payroll systems. “Ultimately, our investigations into these examples have shown that it comes down to one or both of these issues: the payroll administrator doesn’t understand the legislative requirements, or doesn’t understand how to use the software product. Too often we are simply told ‘I just enter the data, and the system works it out’.”

He notes that payroll is a specialised function which depends on continual education and a thorough knowledge of a broad array of applicable legislation which is itself subject to constant change. “There are many factors which affect the pay of your employees. If your payroll administrator is not confident that they are paying employees correctly, then at minimum consider a review to ascertain any issues and liabilities to set them right.”