Section 28 (4) of the Holidays Act 2003 states that where the employer has incorrectly paid holiday pay on a pay-as-you-go basis, the employee is entitled to paid annual holidays in accordance with the Act with no set-off for payments already made - so if you pay incorrectly - you may have to pay twice.
If you employ people who have an intermittent or irregular work pattern for genuine casual work, you may be able to pay out their annual holidays on a 'pay-as-you-go' basis. This means you can pay them 8% of their gross earnings as holiday pay on top of their wages.
What is a genuine "casual employee"? Generally, these are employees whose employment is triggered by an event that cannot be accurately anticipated with no expectation of ongoing employment beyond the event, or whose work pattern can be described as so irregular or intermittent that the concept of four weeks away from work is difficult to apply.
It's important not to confuse permanent part-time employees with casual employees. Many employees who are described as 'casual' are in fact part-time employees with a clear employment pattern. For example, supermarket or hospitality employees whose hours and days may vary, but they are always rostered to work. These employees are entitled to paid annual holidays.
In some cases, however, there isn't such a clear work pattern. Generally, these are people who you employ for a special job that you can't always anticipate or whose work pattern is so irregular or intermittent that you cannot determine what their annual holidays would be.
Example of Irregular and Intermittent Work:
- a retired employee who is called back in emergencies to cover for sickness;
- a specialist tradesperson who is employed only when a particular process, such as repairing a broken machine, is required.
What Employers should do- Employers should agree with the casual worker that each pay day you'll add at least 8% of their gross earnings as annual holiday pay. This is known as a "pay-as-you-go" arrangement;
- Include the "pay-as-you-go" arrangement in their employment agreement;
- Show the 8% annual holiday pay as a separate and identifiable amount on the employee's pay slip, so there is no confusion about what it represents. It is also a requirement to show the separation of pay in your wage and time records for the employees;
- Review for any "regular cycle" change. Casual employees can become permanent where work becomes regular. If you see that a regular cycle of work has developed you'll need to agree with your employee to stop the 8% payment and sign a new employment agreement that gives the employee the normal four weeks' annual holidays. If you don't agree to stop the pay-as-you-go arrangement when a regular work pattern happens, you can still be required to give your employee the annual holidays entitlement even if you have been paying 8%.
When the employment relationship ends, no additional pay is due to the casual employee for annual holidays because it has been paid out with their normal pay.
If an employer has incorrectly paid annual holiday pay in circumstances where the employee is
not on a fixed-term agreement to work for less than 12 months; or does
not work for the employer on a basis that is so intermittent or irregular that it is impracticable for the employer to provide the employee with 4 weeks' annual holidays and the employee's employment has continued for 12 months or more, then, despite the pay as you go payments, the employee becomes entitled to annual holidays in accordance with section 16 and paid in accordance therewith.
Source - DOL