Holiday Buying/Selling Plan - Scenarios

Your organisation implements a No Additional Funding Schemeand has applied NI cost neutrality. The Class 1A National Insurance (NI) contributions rate is 12.8% for the current benefits year. (The Class 1A NI contribution rate is defined in Customising). To calculate the cost of holiday buying/selling in days or hours:

Holiday cost per day = pre-flex salary/ annual working days.
Holiday cost per hour = pre-flex salary / factor (factor = 52 * weekly working hours).

HolidayBuying/SellingScenarios

Two standard holiday plan scenarios are described below:

1.HolidayBuying

An employee receives a basic salary of GBP 60,000 and is entitled to 20 days holiday as standard. He buys a further five days holiday, paying GBP 85.24 for this holiday buying option.

The table below illustrates how the cost of the extra five days holiday is calculated:

EE’s Annual Pre-Flex Salary	GBP 60,000
EE’s Entitled Holidays	20 days
Pre-Enrolment Holiday Value For 20 Days	60,000 / 260 * 20 / 12 = GBP 384.62 per month
Post-Enrolment Holiday Value For 25 Days	60,000 / 260 * 25 / 12 = GBP 480.77 per month
Value Of Adjustment Before NI Cost Neutrality	- GBP 96.15
Value Of NI Cost Neutrality	96.15 – (96.15 / (1 + 12.8%)) = GBP 10.91
Cost to Employee of Buying Five Days	-96.15 + 10.91 = - GBP 85.24

In this scenario, the employee buys extra holiday days. Normally, he would be deducted GBP 96.15 for these days. However, because he has bought holiday, employer NI contributions are reduced . Your organisation has applied NI Cost Neutrality, meaning that any changes in employer NI contributions produced as a result of an employee’s benefit choices are either deducted from/passed back to the employee concerned.

In this scenario, the NI saving of GBP 10.91 is returned to the employee, and only GBP 85.24 is deducted.

2.HolidaySelling

An employee receives a basic salary of GBP 70,000 and is entitled to 25 days holiday as standard. She sells five days of her holiday quota, and eventually is paid GBP 99.45 for this holiday option.

The table below illustrates how the saving due to holiday selling is calculated:

EE’s annual pre-flex salary	GBP 70,000
EE’s entitled holidays	25 days
Pre-enrollment holiday value for 25 days	70,000 / 260 * 25 / 12 = GBP 560.90 per month
Post-enrollment holiday value for 20 days	70,000 / 260 * 20 / 12 = GBP 448.72 per month
Value of adjustment before NI Cost Neutrality	GBP 112,18
Value of NI Cost Neutrality	112.18 – (112.18 / (1 + 12.8%)) = GBP 12.73
Surplus Produced by Selling Five Days	112.18 – 12.73 = GBP 99.45

In this scenario, the employee sells five days holiday. As a result, employer NI contributions are increased . Due to NI Cost Neutrality, the increase in NI contributions (GBP12.73) resulting from the selling of holiday is deducted from the amount paid back to the employee. The employee will therefore receive a reduced amount GBP 99.45, instead of GBP 112.18, for selling five days holiday.