How Does The New National Living Wage Affect Holiday Pay Rates From 1 April?

[Dominique_J]

Workers on the minimum wage who are aged 25+ will see their pay rate rise from £6.70 to £7.20 on 1 April with the introduction of the new National Living Wage.

By law, average pay over the previous 12 weeks is used to determine workers' rate of Holiday Pay, and for anyone previously on £6.70 this average will fall below £7.20 for the first 11 weeks after 1 April.

Will it be illegal to pay holiday pay at below £7.20 per hour after 1 April, or can the lower 12 week average pe paid?

Any guidance on this would be most appreciated.

[Buenchico]

Let's use a nice, simple analogy and extend it from there:

Assume that an employee started work (in an uncomplicated job with a 40-hour, 5-day working week) on 1 January last year, working for the National Minimum Wage of £6.50 per hour. He took a fortnight off in October last year. So he'll have accrued his holiday entitlement during a period when his pay rate was £6.50/hr but, because the NMW rose on 1 October last year, he'll have taken his holiday when the NMW was £6.70/hr.

It's clear that his employer was obliged to pay him the same pay (£6.70/hr) when he was on holiday in October as he would have received if he was at work during those two weeks.

i.e. it's the current rate of pay when the holiday is taken that must be applied, not the rate applicable during the period when the holiday entitlement was accrued.

Therefore, for any holiday take after 1 April next year, any employee who moves from the National Minimum Wage to the National Living Wage (which, remember, isn't everyone, since those under 25 years old will still be under the NMW rules) must be paid £7.20/hr during their holiday period.

The 12-week period you refer to in your post applies to the average number of hours worked per week (including overtime), rather than to the rate of pay during that period. Further, it's not 'set in stone'. While a 2011 Supreme Court ruling [British Airways v Williams] seemed to suggest that a 12-week period would normally be reasonable, if an employee worked where there was a particularly slack period in the months immediately before their holiday (perhaps in agriculture) it might be necessary to calculate the average number of hours worked per week over a 12-month period.

[Dominique_J]

Thank you, Buenchico. I guess, given your answer that there is no clear statement on this from HMRC?

[Buenchico]

If there is, I can't find it!

This general information from ACAS might be useful:
http://www.acas.org.uk/index.aspx?articleid=4109
For more detailed guidance, phone them on 0300 123 1100. (Several AB members have reported waiting ages to get through but also that the advice they've eventually been given made it well worth the wait).