Accrual for outstanding holiday pay

truecockney

I am working for a recruitment agency, and there is an EU regulation stating that all contracted off-site employees who are being paid through PAYE are required to build up holiday entitlement throughout the year.

As far as I can gather, this would then make an accrual appear within the books of the agency, although no costs have been incurred (holiday owed to contractors), but would this require an adjustment to be put through the accounts in the form of an accrual?

Jon_1984

I guess it would unless the agency pay as they go - one agency I have worked through in the past would pay holiday as it was earned by entering a line on the pay slip ( hrly rate x hours worked in week/12). 12 cause at that point stat minimum was 20 days or 4 working weeks per annum.

eg if hourly rate was £5.00 and hrs worked 40

Gross pay = 40 x £5 = £200
holiday pay = £200/12 = £16.68
total paid =£216.68 before taxation.

another local one apparently used to add it to hourly rate e.g. in the above situation "rate £5.41per hour inc holiday pay"

A third used to accrue it and then pay as a normal employee if you booked it off in advance, but only up to the level currently incurred (unlike a normal employee with an allowance from the start of the year to be used in follwoing 12 months).

Not sure if anyone still does it like this but I would start by finding out how your company handle it with the temps and decide accordingly.

truecockney

Accounting for holiday pay that way is now illegal (unless the temp has requested to be exempt from the holiday pay directive) with the introduction of the EU regulation that states all PAYE employees are entitled, by law, to paid leave. Agencies now have to "hold back" some of their pay for when temporary employees take holiday.

This then means that this accrued holiday has a moentary value that we have not yet paid out.

This is what has got me thinking that accrued holiday then equals accrued money which should then be shown in the accounts as monies owed but not yet incurred through the balance sheet. But I'm still not sure whether this is the correct way to handle it or not.

Toffeemadblue

We have a combination of permanent staff who are given a years holiday allowance in advance and temporary staff that accrue holidays at an equivilent daily rate. In our monthly management accounts we accrue the oustanding untaken but earnt holiday at the current wages cost. this involves effectively an opening "stock" figure minus hols taken plus hols earnt.
Therefore the account reflect the wages liability represented by untaken earnt holidays.
Not sure if this helps:001_smile:

truecockney

Thanks. Not quite what I was looking for, but it has been resolved.

Because this is only for temporary contractors, permanent staff remains unaffected.

We will be setting up a simple accrual account whereby the outstanding estimate of untaken leave is accounted for in the Balance Sheet and we will be increasing the year end contractors pay figure. Then we can adjust this figure for each management reports generation to give an accurate reflection of temporary staff costs.