Get a Handle On Calculating Holiday Pay

Calculating Holiday Pay - The Considerations

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Getting to grips with employees’ holiday pay entitlements is a task  many business owners find difficult. In Ireland, under the Organisation of Working Time Act, employees are entitled to a certain amount of holiday leave.

The three main methods to calculate this statutory annual leave entitlement are:

  • 4 working weeks in a leave year in which the employee works at least 1,365 hours (unless it is a leave year in which he or she changes employment)
  • 1/3 of a working week per calendar month that the employee works at least 117 hours
  • 8 percent of the hours an employee works in a leave year (but subject to a maximum of 4 working weeks).

The Act specifies that if more than one of these methods applies, the employee is entitled to whichever of the periods is the greater.

Holiday pay

When it comes to calculating holiday pay, the payment rate is the employee’s normal weekly rate (or rate proportionate to the normal weekly rate). The Act does not prohibit employers and employees from entering into arrangements that are more favourable to the employee. Holiday pay is paid in advance of the employee taking leave.

How advance payments work

Say, for example, an employee who is paid weekly, takes two weeks annual leave. In this situation, the employer will need to pay a week’s pay in advance. To do this, you apply the relevant tax credits, rate bands and USC cut-off points for both weeks when you make the payment. Your employee then receives two weeks’ pay on the payday before they go on leave and no pay in the second week of their two-week holiday.You can find out more about advance holiday pay on the Revenue website.

Bonuses and commission

Usually, employees do not earn any bonuses or commission when on holiday, so you just pay their normal salary while they are on annual leave.

Public holidays

When it comes to public holidays, employees are usually entitled to one of the following:

  • a paid day off on that day,
  • a paid day off within a month of that day,
  • an additional day of annual leave,
  • an additional day’s pay

Maternity leave and sick leave

Employees on maternity leave continue to build up their entitlement to annual leave and are also entitled to leave for any public holidays that occur during their maternity leave (including additional maternity leave). Likewise, employees who are on certified sick leave continue to accrue their annual leave / public holiday leave entitlement. However, employees are not entitled to pay or time off for a public holiday if they have been out sick for more than 26 weeks before the public holiday.

Leavers

Employees leaving employment are entitled to be paid for any untaken annual leave.

Payroll software

Many commonly used payroll software solutions provide tools which can help you calculate your employees’ holiday pay and leave entitlements. However, if in doubt, it’s a good idea to get advice as holiday calculation errors can be expensive and time consuming to resolve.

Need help calculating holiday pay? Contact GroForth for details of our payroll services.

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