Holiday Entitlement and Holiday Pay Update
If you have attended our HR Forum events over the last year, you will have no doubt heard us discussing regular updates on retained EU law and the steps the Government has been taking in relation to this. A large proportion of the Government’s announcements and discussions have centred around holiday entitlement and holiday pay, particularly following the recent Supreme Court case of Harper Trust v Brazel.
Several changes have now been approved following Government consultations. The Employment Rights Regulations 2023 (ER Regulations), which were introduced to bring the changes into effect, came into force on the 01 January 2024. We have detailed the main changes for employers to be aware of in further detail below.
- Holiday and rolled-up holiday pay for irregular hours and part-year workers
The ER Regulations have introduced a new method of calculating holiday entitlement for irregular hours and part-year workers.
To assist employers, the ER Regulations include definitions for ‘irregular hours worker’ and ‘part-year worker’. As a brief summary, an irregular hours worker is a worker whose number of paid hours vary under their employment contract. A part-year worker is a worker who only has to work part of the leave year, as there are periods during the leave year that they are not required to work under their employment contact.
From the 01 April 2024, irregular hours and part-year workers holiday entitlement will accrue at a rate of 12.07% of their actual hours worked at the end of each pay period and will be calculated in terms of hours rather than weeks. A pay period is the frequency over which the worker is usually paid, i.e monthly or weekly etc.
Employers are entitled to choose how holiday payments are made. They can either:
- Pay when holiday is taken, by calculating the worker’s average weekly pay over a 52-week reference period, or
- Pay rolled up holiday pay, calculated on the basis of 12.07% of pay received in each pay period. A payment will therefore be made in each pay period for holiday pay, and the worker will not receive any additional pay when they take annual leave from the business.
The Government has published helpful guidance on these changes, along with worked examples to assist with the relevant calculations. The guidance can be found here.
- Definition of a week’s pay
The definition of a week’s pay under the ER Regulations sets out the payments that should be included in the calculation of a week’s pay for holiday pay purposes for the first four weeks of leave under the Working Time Regulations. From 01 January 2024, the payments that should be included are:
- Payments, including commission payments, intrinsically linked to the performance of tasks which a worker is obliged under their contract to carry out.
- Payments for professional or personal status relating to length of service, seniority or professional qualifications.
- Payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date.
This new definition will also apply to the holiday pay calculation for irregular and part-year workers from 01 April 2024. The above is considered to set out what should be included in the calculation of ‘normal’ pay.
It is however important for employers to note that the amended definition of a week’s ‘normal’ pay does not apply to the additional domestic right to 1.6 weeks holiday, which under the regulations need only be paid at ‘basic’ rate of pay, although many employers choose not to distinguish between the two different types of leave.
What are the main considerations for employers going forward?
The main changes discussed here relate to irregular hours and part-year workers. If you employ such workers, we recommend that you:
- Review internal processes and procedures to ensure that they are legally compliant;
- Consider the way in which you will be making holiday pay payments;
- Consider whether consultation is needed in relation to any proposed changes to holiday pay; and
- Review and update any holidays policy that is in place to ensure that it accurately reflects the position under the amended legislation and the business decision in relation to pay.
This list is not intended to be exhaustive, however it covers some points that employers may want to consider in light of the changes.
If you have a query regarding any of the points raised in this article, or if you have a query on another area of employment law, our friendly and professional team are here to help.
We are able to advise on a variety of employment issues for both employer and employee.
Please speak with one of our Employment Law team on 01246 555 111 or contact:
Amy Hallam
Head of Employment
t: 0114 3496989
e: amy.hallam@brmlaw.co.uk
Ellie Leatherday
Associate
t: 01246 564002
e: ellie.leatherday@brmlaw.co.uk
Jade Taylor
Trainee Solicitor
t: 01246 560587
e: jade.taylor@brmlaw.co.uk
