We have developed an additional way to account for employment costs for those who prefer to accrue those costs at the time holiday pay is calculated and accrued. Once switched on, those workers who have their holiday pay method set as Accrued will have an additional liability accrued at the time of their payslip to cover the employment costs that are due at the point they request payment of their holiday pay.
Below are further details as to how to switch this method on and an example of how the new payslips/process will work.
In terms of enabling this new calculation method, go to Company Setup>Payroll Settings and scroll down to Accrued Holiday Pay Settings and there is a new field called Additional Accrued Employment Cost. In this example, we have set this as 17.3% which is made up of 13.8% Employers NI, 0.5% App Levy and 3% Employers Pension. Please note that you will need to review this setting each tax year and adjust accordingly if any of these Tax percentages change. This approach covers the maximum amount the employment costs can be. The % amount that is accrued is your decision and you may also have only very short term workers who do not end up in the pension, if so, you may decide to only accrue 14.3%.
Please note - this percentage is only applied to the Accrued Holiday Pay figure and NOT Basic Pay + Additional Taxable Wage.
Once this has been switched on and you have run a payslip for a worker that has accrued holiday pay, you will see a new line appear in the Company Income received section of the payslip and the example figure below is 17.3% of the Accrued Holiday Pay Deduction figure:
Their current Accrued Holiday Pay figure is currently then:
If that worker then requests for their holiday pay balance to be paid to them, you will see there is a new column in the Holiday Pay Payout screen as it will also show the Employment Costs that were accrued (£39.08) as well as the Holiday Pay itself (£225.88):
Importantly, it's common that the week they request payment is the week they are taking time off for annual leave and if so, there are National Insurance allowances to utilise and it may be that the Actual Employment Costs are lower than what was accrued. When this happens, the additional benefit will pass down to their pay section:
As the example shows below, the Actual Employment Costs come at the tax point of payment were £12.01 and as £39.08 was initially accrued, the additional £27.07 will be added to their Payments section:
Finally for completeness, the Message Section of the payslip will confirm that the original amounts that had been accrued for Holiday Pay and Employment Costs have now been paid out:
