Additional Holiday Pay (AHP) | Expert Payroll Services

Additional Holiday Pay (AHP)

Holiday pay

We are finding more companies are including Additional Holiday Pay as part of their monthly payroll routine, hopefully, the below will provide a useful guide regarding this type of payment and how it is calculated.

Some Background

Employees must receive their normal pay when they take annual leave. Recent legal judgments have clarified this point.  This means normal over time (and some other additional payments) are now included in the calculation of an employee’s holiday pay. The aim is to ensure employees are not deterred from taking a holiday because they are paid less than when they take the leave.  This requirement only applies to the first 20 days of an employee’s holiday entitlement (pro rata for part-time staff). From 1 October 2019, the calculation of Additional Holiday Pay changed to reflect amendments to employment legislation which take effect on 6 April 2020.

Additional Holiday Pay (AHP) Defined

Additional Holiday Pay (AHP) is a top-up payment that ensures that any qualifying additional payment(s) that you receive in the 12 months (previously 3 months) prior to taking a period of the holiday are factored into your holiday pay.

What are Qualifying Payments?

Below are some common qualifying payments that are usually included in the calculation of AHP

Split Duty

Standby

Hourly Enhancement

Extra Pay (Flat Rate Overtime)

Overtime @ 1.00, 1.25, 1.5, 2.0 etc.…

Sea Hours

How is AHP Calculated?

Typical Calculation Method – HOURS:

  • Add together the qualifying payments paid to you in the previous 12 pay periods to the month you took holiday in;
  • Divide this figure by 12 to get a monthly average;
  • Multiply this monthly average by 12 to get a yearly average;
  • Divide the yearly average by 48 to get a weekly average;
  • Divide your weekly average by the hours you work per week to get an hourly average;
  • Multiply the hourly average by the amount of hours holiday you took that month

Typical Calculation Method – DAYS:

  • Add together the qualifying payments paid to you in the previous 12 payslips prior to the month you took holiday in;
  • Divide this figure by 12 to get a monthly average;
  • Multiply this monthly average by 12 to get a yearly average;
  • Divide the yearly average by 240 to get a daily average;
  • Multiply the daily average by the number of days of holiday you took that month

Is AHP paid on all Holidays?

No. AHP is only applicable to your first 20 days of holiday you book in any leave year (or the pro rata equivalent if you’re part-time) and requires at least one of the qualifying additional payments to have been paid to you in at least one of the twelve payslips prior to the month in which your period of holiday occurs.

Will my tax and NI liability increase?

Yes, AHP is classed as earnings for Tax and NI purposes.  Any AHP paid will be added to the rest of your pay and Tax and NI will be calculated accordingly.

Is AHP paid in the same month as I take my holiday?

Not generally, the calculation of AHP payments takes place as part of the payroll cycle and there is a mid-month cut-off each month, after which payments are carried over into the following payroll month. This means that if you book and take a period of leave at the end of a month, AHP may not be assessed until the following month’s pay cycle.

Will AHP effect my means-tested state benefits?

AHP payments are recognized by the Department of Work and Pensions as salary and will be reported to HMRC as forming part of your monthly salary. Therefore, you must be aware that this could have an effect on any means-tested benefits.