Changes to the law on holiday pay

As of 1^st January 2024, new changes have been implemented by the government in relation to holiday pay. These reforms have been put in place in order to simplify holiday entitlement and holiday pay calculations for employers and employees. This article will be detailing the key changes that have or will come into effect this year. For more information on what this means for you as an employer, see our other recent guide on the topic ‘New guidance on holiday pay’.

New rules for irregular hours and part-year workers

In an attempt to avoid difficulties following the Harpur Trust v Brazel decision, the government originally proposed a system where those who work irregular hours and part-year workers would be able to accrue holiday leave as a percentage of their average working hours, which would be calculated over a 52-week reference period. However, this would have meant part-year workers would have more paid annual leave entitlement than part-time workers that work the same number of hours, but across the entire year instead of part of it.

Therefore, the government went for a similar system to ensure more fairness in how holidays can be accrued. From 1^st April 2024, part-year workers and workers with irregular hours will accrue annual leave on the last day of each pay period at a rate of 12.07% of the number of hours worked during that time, subject to a maximum of 28 days a year.

Carrying over leave

With the agreement of their employer, workers can carry over up to 8 days into the next leave year if they don’t take all of their annual leave in the current year. If a worker is not able to take some or all of their holiday entitlement due to taking maternity or other family leave, they are entitled to carry over up to 28 days of the leave they haven’t taken into the next year. In situations where a worker that’s on regular hours all year cannot take their leave due to being off sick, they can carry forward up to 20 days of untaken leave. These days should be paid at the worker’s ‘normal’ rate. A worker can carry over leave into the next year if:

• The employer hasn’t given the worker suitable opportunity or encouraged them to take their leave
• The employer has refused to pay a worker their paid leave entitlement
• The employer did not inform the worker that untaken leave should be used before the end of the year to stop it from being lost

 

Holiday pay rates

All employer, full-year workers are legally entitled to 5.6 weeks of paid holiday entitlement per year under the new changes. Four weeks of this is paid at the worker’s ‘normal’ rate of pay, including regular payments the worker receives such as bonuses, overtime, and commission.

The other 1.6 weeks of leave can be paid at the worker’s ‘basic’ pay rate. It’s not clearly stated in the legislation which entitlement should be used first. Many employers have chosen not to distinguish between the two different types of leave and pay the full 5.6 weeks at the normal rate. If you’re going to differentiate between the holiday entitlements and pay, it would be beneficial to clarify that in your employment contract or handbooks for employees.

 

Rolled up holiday pay

Rolled up holiday allows employers to include an extra amount into a worker’s payslip in respect of holiday pay (so the worker doesn’t receive pay when they take their holiday entitlement). EU law does not permit this because it is believed that it dissuades workers from taking holidays, as they will be able to earn more money by continuing to work.

The government initially intended to introduce rolled up holiday pay as an option for all workers. However, it has now decided to reduce this to only workers with irregular hours and part-year workers. It’s important to note that rolled up holiday pay does not mean workers can work continuously throughout the whole year without taking any holidays. The worker has a responsibility to make sure they have a minimum of 28 days off. The draft regulations provide employers with the option of rolled up holiday from 1^st April if:

• The worker is classed as part-year or having irregular hours
• Holiday pay is calculated as 12.07% more on top of the worker’s total pay
• The additional 12.07% is paid at the same time as the worker receives their normal pay
• Holiday pay is listed separately on the payslip

 

Conclusion

These are some of the important changes the government has introduced in relation to holiday pay. For more information on the changes, our employment law consultants for employers can help. Don’t hesitate to contact our specialist team if you have any questions or book a free consultation with us online to discuss your employment law and HR needs.