NIM09130 - Earnings Periods: Holiday pay paid in advance or in arrears: 'Holiday earnings period' rule (or Method B)

Regulation 2 of the Social Security (Contributions) Regulations 2001 (SSCR 2001) (SI 2001 No 1004)

The employer may use the ‘holiday earnings period ‘ rule (or “Method B”) if their payroll arrangements mean they cannot prepare several separate weekly payrolls in a single week. The employer decides which method of calculation to use – either ‘holiday earnings period’ rule or ‘regular interval’ rule (see NIM09120).

Methodology

The employer divides the total payment by the number of complete weeks it covers to get the average weekly pay and multiplies the NICs due on the average weekly pay by the number of weeks involved to give the total NICs due. The employer must use the rates, limits and brackets current on the date of payment of earnings, even if the rates, limits and brackets change during the holiday period.

The employer can only use the ‘holiday earnings period’ method for employees with an earnings period of a week or multiples of a week. They cannot use this method for monthly 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 up fractions of a week eg if an employee gets 10 days pay, the employer calculates NICs on an earnings period of two weeks.

The employer cannot use the ‘holiday earnings period’ method if the holiday pay is from a scheme in the construction or similar industry.