Holiday pay rules changed on the 1st of January 2024. Here, we set out the key points and summarise each change that all employers need to act on to keep within the law. We urge you to read these changes and get in touch with us if you need support from employment law specialist solicitors.
What has changed?
For ‘irregular hours’ and ‘part-year’ workers you can now:
- calculate accrual based upon12.07%; and
- elect to roll up holiday pay at 12.07%
Accrual during family-related leave and sick leave will be based on a 52-week average.
The definition of ‘normal remuneration’ has changed i.e. what is included in your calculations of holiday pay now has specific guidance but which type of leave that applies to is still distinct.
Right to carry over has changed with new provisions covering employer default and protected absences.
We now have government guidance on all of this with examples of how to calculate holiday pay for each type of worker.
Irregular and part-year workers?
Where working patterns satisfy the definition of an “irregular hours worker” or “part-year” worker, the employes may pay holiday (as opposed to pay when holiday is taken) as a rolled-up payment using the 12.07% of pay method for calculating holiday pay.
What is an “irregular hours” worker?
In the new guidance, this is a worker who’s‘ number of paid hours that they work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable’.
What is a “part-year” worker?
In the new guidance, this is a worker who ‘under the terms of their contract they are required to work only part of the year and there are periods in that year of at least a week where they are not required to work’.
In these cases, employers can elect (you don’t have to) to apply rolled up holiday, but we advise this is reviewed very carefully because:
- it can only apply to leave years beginning on or after 1 April 24; and
- certain roles may require wider health and safety and compliance considerations to ensure leave is taken;
- the question of whether or not the role is within the irregular hours or part-year definition isn’t always as clear cut as we may like;
- if your leave year does not start on 1 April 24 then you will need to delay implementation or change it.
What about workers who are not irregular or part-year worker
There is no change here to how holiday is calculated for regular / fixed hours workers.
In summary terms they simply accrue from day one at the end of each month at 1/12 of each month/pay and holiday pay is calculated on a pro-rata basis for the leave days/weeks they take based on their pay (factoring in full and part-time fixed hours as applicable).
Carry over rules – what’s changed?
The regulations now make clear that where an employee cannot take leave due to family-related leave (maternity, adoption, paternity, parental, bereavement etc.) then employees can carry it over into the next leave year.
For employees who cannot take leave due to sickness, they too can carry over, such leave must be taken within 18 months of the end of the leave year from which it was carried over.
Please note the 20 days and the 8 days are still dealt with differently, for example, the immediate point above only applies to the 20 days (see more on this below).
There is much more onus on the employer to make sure their workers/employees take their holiday (if not rolled up, of course) and workers/employees will be able generally to carry over (the 20 days, remember the distinction flagged below) untaken leave where you as their employer fails to:
- Inform them untaken leave can’t be carried forward/may be lost;
- Provide a reasonable opportunity to take their holiday leave;
- Encourage workers/employees to take their holiday; or
- Recognised rights to paid holiday leave.
Normal pay includes the extras
Case law around the inclusion of additional payments like regular overtime, commissions etc. is now codified – generally, they are included.
Again, this appears to apply to the 20, not the additional 8 days - despite some recent case law developments in this area.
What is the distinction between the first 20 days and the 8 days leave?
All full-year workers are entitled to 5.6 weeks paid leave, which remains the same, but there is a legal distinction between:
- the first 20 days leave to which all the EU-derived case law applies requiring the ‘weeks’ pay’ to include some types of over-time, bonus, commission etc. ;
- as opposed to the UK working time 1.6 weeks leave which those principles did not apply to.
The new regime maintains that distinction, so what does that mean?
In simple terms, it means the two can be treated differently, but only in specific circumstances where the terms make that clear and there is a clear system for tracking and calculating the two types of leave.
What should you do now?
Review each type of worker with the new law and definitions in mind including:
- Work patterns - irregular or not?
- Pay, including bonus, commission, overtime etc. - what should be included?
- What does the contract say and does it need to be amended?
- Seek advice on how to implement any changes.
- Ensure you check implementation dates bearing in mind your holiday year.
- Ensure all workers are reminded of their leave entitlement each year.
- Ensure all workers have the opportunity to take their leave in each leave year.