Changes to holiday pay and holiday entitlement – January 2024
Changes to holiday pay and holiday entitlement from 01 January 2024
The government introduced changes to the Working Time Regulations 1998 (the Regulations) on 1 January 2024. One of the biggest changes is in regard to holiday rights and pay.
There will be changes to holiday rights for certain types of workers. Those workers are defined into two categories:
Irregular-hours workers – A worker’s hours will be irregular if, in that holiday year, the number of paid hours that they work in each pay period (during the term of their contract) is wholly or mostly variable. This may catch agency workers, casual workers, variable hours workers and zero hours workers.
Part-year workers – A part-year worker is required to work only part of the year and there are periods within that year (during the term of the contract) of at least a week they are not required to work and are not paid. This could include seasonal workers and some term time only workers. There are questions as to whether term-time workers who are paid monthly will fall under this category or not.
The three important changes to irregular-hours workers and part-year workers are as follows:
- Holiday accrual
There will be a new method of holiday accrual for both irregular-hours workers and part-year workers. This is due to the result in the Supreme Court’s decision in Harpur Trust v Brazel last year. In this case part-year workers and some casual workers had more holiday entitlement than workers on more regular contracts who worked the same number of hours on an annual basis.
Employers will be permitted to calculate holiday entitlement for irregular-hours workers and part-year workers as 12.07% of the actual hours worked in a pay period.
- Rolled up holiday pay
Employers will be able to choose from two systems for paying holiday pay and they are as follows:
- Pay holiday pay when holiday is taken calculated at the rate of a week’s pay for each week’s holiday. (A week being the average amount of weekly pay over the previous 52 weeks, and will consist of the average number of hours worked in each week of the same period); or
- Choose to pay rolled up holiday pay. Rolled up holiday pay will be an uplift of 12.07% to the workers’ remuneration for work done in each pay period. This is a simpler calculation, as many employers are already aware, than if holiday pay were being paid at the time holiday is taken.
- New method to calculate holiday entitlement
The government has published guidance on calculating holiday pay. Additionally, employers can also use a new method for calculating holiday entitlement for irregular-hours workers and part-year workers who are on long-term sick leave or statutory leave. An average over a 52-week reference period will be used to calculate the amount of holiday accrued during a period of sick leave or statutory leave (such as maternity leave). The government will not be implementing a 52-week holiday entitlement reference period for other employees and workers who are not currently on sick leave or statutory leave.
Restating aspects of the Regulations
Changes will also be made to the Regulations to restate some existing working time requirements that derive from EU case law. This is to avoid any uncertainty when the EU Retained Law (Revocation and Reform) Act 2023 (‘REUL Act’) comes into force on 1 January 2024. On this date the special status of retained EU Law that is currently in our legislation will end.
The REUL Act gives the government the power to restate, revoke or replace law by statutory instrument. It intends to use this power to amend the Working Time Regulations 1998 to codify certain principles that have been developed by European case law and domestic case law under the Working Time Regulation. This includes the definition of what a week’s pay is and the right to carry over holiday.
A Week’s pay
The Regulations provide for certain payments to be included within the definition of a week’s pay. Under the Regulations, a week’s holiday pay will include:
- 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 the 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.
The right to carry over holiday
The Regulations provide for circumstances where workers have the right to carry over holiday into the next year’s leave. For example, long-term sickness or when the right to paid holiday has been completely denied.
The Regulations revoke legislation in which any accrued holiday can be carried over for two holiday years in specified circumstances. This was implemented in the COVID-19 pandemic. Any accrued holiday must be used by the 31 March 2024.
Definition of irregular-hours workers and part-year workers – pause for thought…
Irregular-hours workers and “Wholly and Mostly Variable”
There are questions surrounding the implementation of this definition and the limits on what wholly or mostly variable hours mean. Do the terms of the contract have to provide for such variation of hours?
This may mean that if any minimum hours are detailed in a person’s contract they may not considered to be an irregular-hours worker. Does this mean minimum hour contracts will be less desirable in the future?
For leave years starting on or after 1 April 2024 these workers’ holidays will no longer be governed by regulations 13 and 13A of the Regulations but will derive from Regulation 15B. Their holiday will be calculated in hours rather than weeks and will accrue on the last day of each pay period.
Leave year begins either as provided by a relevant agreement (for example a written contract) or on the anniversary of the start date of the worker. Therefore, in theory, if the leave year begins on the 31 March 2024 then the provisions under the Regulations 15B(1) will have no effect until 30 March 2025.
Talk to Tollers
These changes are more likely to affect employers who utilise irregular-hours workers and part-year workers. The re-introduction of the rolled- up holiday pay calculations could mean a smoother process when calculating holiday pay entitlement.
How can Tollers help you? We can review your employment contracts and holiday policies to ensure compliance with the latest case law and explain how the ruling might impact your organisation. If you have any other queries relating to employment law and HR, make sure to check out our employment law FAQs page or … talk to Tollers on 01604 258558, our experienced Employment Law and HR team are here for you.