How do you calculate holiday pay when an employee’s pay is variable or is part fixed and part variable?
Section 20 of the Organisation of Working Time Act (OWTA) governs an employee’s right to pay in respect of their annual leave.
It provides that pay shall:- “be paid at the normal weekly rate or, as the case may be, at the rate which is proportionate to the normal weekly rate.”
What is the ‘Normal Weekly Rate’?
If the employee is paid a fixed rate or salary which does not vary according to the amount of work done, then the normal weekly rate is the sum paid for the normal weekly working hours worked by the employee before annual leave.
If on the other hand their normal weekly rate varies depending on work done then the normal weekly rate is the average weekly pay of the employee calculated over a period of 13 weeks ending immediately before the annual leave starts.
If no time was worked in the 13 weeks prior to taking leave, then the average pay in the 13 weeks prior to the day on which time was last worked is used in the calculation.
Let’s look at some examples
If an employee is paid a basic salary of €1,000 per week, the employee is entitled to holiday pay of €1,000 per week’s leave.
If an employee is paid a basic salary of €1,000 per week and in addition the employee is paid an average regular allowance of €500 over the 13 week prior to taking leave, the employee is entitled to holiday pay of €1,500 per week’s leave.