Unpaid Leave Calculations

media2it · PayPerShop Newbie Joined: 18 Dec 2007 Posts: 3

This may sound stupidly simple but I am afraid, I need to know the correct procedure in order to settle an internal dispute.

In cases where an employee has availed of leave more than entitlement, the excess days' leave needs to be adjusted against the salary dues. What is the correct procedure of calculating the same? For example, if the excess leave is for one day, how does one arrive at the one day salary calculation - is it monthly salary divided by number of calendar days in a month or monthly salary divided by number of working days in a month?

I also undertand from some quarters that the usual practice is to treat every month as having 30.5 days and february to have 29.5 days (barring leap year when it is also at 30.5 days) Is this correct?

Thanks!!

Ian Congreave · Posted: Mon Jan 07, 2008 9:30 am Post subject: Dail rate calculations

Thank you for posting the question - it is not as simple as it sounds and there are a number of possible answers.

First, I am going to refer you to an earlier discussion on the Forum on this subject, at http://www.paypershop.com/phpBB2/daily-rate-t369.html.

The key point from that answer is that the issue is a contractual one - there is no single statutory answer. So, the first place to look is in your company's employment terms and conditions. In order to recover "overtaken" holiday pay, you must have a specific reference to the procedure in your terms and conditions - if there is no reference to the practice, any recovery would be an unlawful deduction and you could end up with a tribunal claim which you would lose.

So, assuming your employment contracts allow you to recover overtaken holiday pay, the amount that can contractually be recovered for each day should also be specified there.

I have never heard of the 30.5 and 29.5 day approach, so it certainly is not the "usual" way of doing it. But, it sounds as good as any and, as long as it is defined in your employment contracts, there is no reason why it should not be used.
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media2it · PayPerShop Newbie Joined: 18 Dec 2007 Posts: 3

Thanks Ian for your response and reference to the previous posts.

Whatever I am gathering and considering using my understanding, it is unfair to use the number of working days in a week/month as it makes the daily pay a variable component month on month or week on week. I think th ebest way is to divide the salary amount by 365 days and consider that as the daily pay - afterall even Sunday & Saturdays (if off) are considered as paid holidays in a week.

Media2it

MartinC · Posted: Wed Jan 09, 2008 2:54 pm Post subject:

As you'll see in the previous thread, there are all sorts of ways of doing this.

However, if the employee was to be paid/deducted for a week's leave, then usually they would be paid/deducted at the rate of:

annual salary / 52, and not
annual salary x (5 / 365)?

If that logic is used for single days or part-weeks, then the payment/deduction method should be: no of days x annual salary / 260

That is the method I have been familiar with over a number of years with several employers.

John B · PayPerShop Newbie Joined: 13 Jun 2007 Posts: 2

I'd like to pick up on the view that it is unfair to use the number of working days in a week/month as it makes the daily pay a variable component month on month or week on week.

With monthly pay are you not effectively paying variable daily rates anyway from month to month? Take someone working 5 days a week and earning �24,000 pa to whom you pay a monthly salary of �2,000. Typically the number of working days in February is 20, but 23 in March.

Granted this "anomaly" should even itself out over a period of time but I'm just making the point that no monthly payroll calculation method is perfect.

For example, if you use annual salary/365 to calculate the value of a day's pay, then for someone paid �2,000 a month who was on unpaid leave for the whole of a 31 day month you would reduce their pay by �2038.35 - more than a full month's pay!

Ian Whyteside · Posted: Wed Jan 09, 2008 7:06 pm Post subject: Unpaid leave calculations

Hi everyone,

I think John's point is a very valid one. Yes there is no definitive rule on the calculation of a daily rate but the use of 365ths can produce as many anomalies as it does answers.

THe keypoint is to make sure there is soemthing in the terms and conditions of employment which specifies how a days pay is calculated for all purposes. It is a fomrula which will be used often, for holiday pay that is to be paid to holiday pay that is to be recovered, for part months worked at the beginning and end of the employment to, as here, the determination of unpaid leave.

As long as it looks fair, is easy for the employee to calculate (so that they know how much they are to be paid or to lose in given circumstances) and in particular a days pay is the same for a payment as it is for a recovery then it will be OK.

There is another key point, as indicated by Ian, do teh terms and conditions actaully allow the employer to recover unpaid leave and in what way? Can the pay be reduced and in what period. A client of mine had a clear condition that unpaid leave could be deducted but the employee proved it had to be done in the pay peirod in which it happened and no other. Problem is that during the pay period it was not know that the employee was going to be absent and recovery in the following month was not allowed for so even i have to agree that they could not recover.

It seems so straightforward and it should be but it is often the opposite so I think you should stick to ascertaining what a days pay is for a working day, irrespective of any other consideration and get someone to write it into the T's & C's.

Ian Whyteside