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| Industry News |
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HOLIDAYS
July 2009
BUYING ADDITIONAL ANNUAL LEAVE?
Some employees have asked if they can buy some extra annual leave. As this could help you in the current economic climate, you’re interested. So how do you set up this type of scheme, and are there any financial advantages?
Wanting more leave
Research by the benefits provider, Accor Services, found that one of the main constraints employees feel under is lack of time. Therefore, don’t be surprised if you are approached by staff asking if they can boost their annual leave entitlement. One of the ways they can do this is through buying some extra days’ holiday from you.
Nice idea, Given the current rough trading conditions, the opportunity to save extra money may appeal to you. So how do you set up such a scheme and could there be any extra financial benefits to you in doing so?
How does it work?
The good news is that you have plenty of discretion in how you choose to operate an annual leave “buy-back” scheme. For example, it can work as a standalone benefit, or it can be integrated into a flexible benefits package if you offer one.
Financial benefits
For each day of leave that you allow an employee to buy, you can save yourself one day’s gross pay along with any NI (currently 12.8%) that would have been payable.
Tip.The employee will also benefit financially. If they are a basic rate taxpayer one extra day’s holiday will only cost them 69% of their gross daily pay, or 59% if they pay higher tax rate.
Calculating the costs
To calculate the cost of a single day’s holiday take an employee’s salary and divide it by the number of days that they work. A full-time employee, e.g. one who works a five day week will have a total of 261 working days per year (365 less 52 x 2 = 104) The employees salary is then divided by this number to work out their daily pay,
An example
Ann is a basic rate tax payer. Her salary is £20,000 and she works a five day week. She’s already entitled to 25 days’ leave (excluding bank holidays). The cost of a day’s holiday to Ann is £76.63 (£20,000 divided by 261 days). So if she take an extra five day leave you will save £383,15 in gross pay, plus a further £49.23 in NO contributions. This is an overall saving of £432,38.
Tip. If you need to pay for replacement cover, e.g. a temp, when an employee takes leave, then price buy-back days at a premium to cover your additional costs, say by 15-20%
Limits in place
We would recommend that you allow staff to buy back extra holiday only up to a maximum number of days, e.g. five or ten days, on top of existing holiday entitlement. You could also make it subject to a qualifying period of service, such as two years. If necessary, set restrictions on when this extra leave can be taken – this system is to suit you not them.
Tip. Don’t forget that from April 6 2009, the statutory holiday entitlement increased to 5.6 weeks (28 days) including bank holidays, for full time workers (pro-rate for part time workers) Therefore, any extra holiday leave that you sell employees must be over and above this amount.
Source: Tips & Advice Personnel 25th June 2009
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