New UK Holiday Pay: If You Haven’t Implemented it in Your Payroll yet, the Best Time to Start is Now
The new UK holiday pay regime is a hot topic, most UK payroll managers, HR directors, and SAP Payroll administrators seem to be aware of and discussing by now. However, whilst some organisations are already using the new calculations, we still see many employers, who haven’t taken any action yet to change their processes or SAP payroll systems. The reason for this is quite often that they are confused about the vagueness of the court rulings or that they are waiting for SAP to provide a convenient solution they just need to switch on. This article is meant to give you an overview of the current situation as we experience it in our UK payroll team, some advice on how to proceed and links to 3 further articles from our team for details.
It may look complicated, but doing nothing is probably your worst option
Most experts acknowledge that the current situation is somewhat vague, but also emphasise that it is unlikely for more clarity to be brought into it any time soon. Instead of doing nothing, employers should analyse the existing rules in their particular context and establish a reasonable process to amend their holiday pay. Even at the risk of having to change details as they go along, taking action would protect them from serious loss of trust from their workforce: employees will hear from family and friends, who are already enjoying a nice top-up of their salary, when they go on leave, and they will feel cheated by their employer, if they don’t get it. And that’s not even considering legal firms, who may pick this up as a money making opportunity like PPI and start calling your employees to “help” with legal action.
We found that getting your SAP payroll experts in board early in the discussion can help
- to avoid costly and difficult to manage processes, when other options are available
- to get some structure into the discussions and make sure legal experts give you the answers you need to set up your new process (I have the highest respect for the legal profession, but they sometimes struggle with the concept of “you have to tell the computer, whether it’s yes or no – there is no ‘maybe’ in the digital world”).
Getting the answers you need to set up your process and SAP HR Payroll
Questions you need to ask fall into 4 major categories as explained by my colleague Hannah Smith in this blog article:
- Which days are to be paid with the new uplift?
- Which amounts go into the calculation and which number of hours or days are they divided by to calculate the average?
- Which period of time is to be considered for this calculation?
- How do you communicate to your employees (starting with how to show the uplift on the payslip)?
Apart from those 4 sets of questions, you also need to establish what to do for the past, as it is likely your employees have a claim to receive an uplift for holidays taken before your solution goes live.
Why there can’t be a fully standardised solution for UK holiday pay in SAP Payroll
As indicated above, there are choices you can make in the way you calculate UK holiday pay and these will be reflected in different possible set-ups in SAP UK Payroll. Also, the context of your existing set-up will influence the changes required.SAP payroll offers options to configure absence payments based on averages already and it’s quite common in some countries (as someone, who started his SAP HR career in 1990s Germany mostly in the manufacturing industry, I kind of grew up with average payments). These configuration options are sufficient for some of the interpretations we’ve seen employers choose. So, SAP can argue (and rightly so) that their payroll system is ready to deal with the legal requirements, if configured correctly.For some ways of interpreting the legal situation and also for simplified end user processes, custom programming may be required. In her second blog article on UK holiday pay in SAP payroll Hannah Smith provides a brief overview of your technical options in the SAP payroll schema and further configuration.
The interesting cases – challenging your payroll process and SAP HR system
When talking to customers so far, we’ve come across quite a few “interesting” situations already and it is important that you make conscious decisions for these cases together with your legal experts. The “peculiarities” we’ve seen comprise:
- longer relevance periods due to seasonal business (easy)
- overtime not paid directly, but monthly or annually based on banked hours accounts (possibly difficult in process and communication)
- leave entitlement built into the shift pattern (probably requires custom code)
- using in-period values (as paid) rather than for-period values (i.e. payments for overtime in the relevant period, no matter when paid). This is the worst option we’ve seen so far. Sure, it can be programmed, but it is open to manipulation and in-transparent.
To take a closer look at these special cases, check out the 3rd article of our UK holiday pay blog series.
As already mentioned above: you may have to make changes as you go along and more court cases emerge, but if you implement a 95% solution now, at least you can’t be blamed for doing nothing and you also start the inevitable learning process as special cases and exceptions pop up. In case of doubt, I’d recommend to go with the simpler and more transparent process for now, and only add complexity later, if it turns it is definitely legally required.