Earnings Periods: Holiday pay paid in advance or in arrears: ‘Holiday earnings period’ rule (or “Method B”)
The employer may use the holiday earnings period rule (or MethodB). The Department provides this method of calculation because an employerspayroll arrangements may mean that they cannot prepare several separate weekly payrolls ina single week. The employer decides which method of calculation to use eitherholiday earnings period rule or regular interval rule (see NIM09120).
The employer divides the total payment by the number of complete weeks it covers to getthe average weekly pay and multiplies the NICs due on the average weekly pay by the numberof weeks involved to give the total NICs due. The employer must use the rates, limits andbrackets current on the date of payment of earnings, even if the rates, limits andbrackets change during the holiday period.
The employer can only use the holiday earnings period method for employeeswith an earnings period of a week or multiples of a week. They cannot use this method formonthly paid employees or those employees who have an irregular pay period.
If holiday pay is for less than a complete number of weeks, the employer rounds upfractions of a week eg if an employee gets 10 days pay, the employer calculates NICs on anearnings period of two weeks.
The employer cannot use the holiday earnings period method if the holiday payis from a scheme in the construction or similar industry.