Holiday Pay update

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Holiday Pay update

The Government published its responses to a consultation in relation to holiday pay and Working Time Regulations (WTR) in November 2023 (reported by JMW here), and has now published guidance in relation to reforms of, and changes to the WTR.  The guidance will assist employers calculating holiday pay and holiday entitlement for part-year workers and workers with irregular hours.  For the purposes of this article, reference to ‘worker’ is reference to all individuals whose employment status is either as a ‘worker’ or an ‘employee’.

The reforms seek to simplify the law regarding holiday pay and entitlement, particularly for part-year and irregular hours workers, following an earlier supreme Court ruling in the case of Harpur Trust v Brazel.

What are the reforms?

The guidance from the government offers extensive commentary to support and assist employers in calculating statutory holiday pay entitlement and pay calculations for irregular hours and part-year workers, and what to do if those workers leave employment part-way through a leave-year.   

Workers with fixed pay and hours are not likely to be affected by the reforms.

A number of reforms came into effect on 1 January 2023 including:

  • updated definitions for ‘irregular hours workers’ and ‘part-year workers’;
  • workers being allowed to carry over a maximin of 8 days annual leave into the next leave year (which may increase if they have not had opportunity to use annual leave);
  • removal of the Working Time (Coronavirus) (Amendment) Regulations 2020 which allowed workers to carry over any annual leave that they did not have opportunity to use because of the COVID-19 pandemic.

Further reforms will come into effect to leave years beginning on or after 1 April 2024 including:

  • a method of calculating statutory holiday pay for to leave years beginning on or after 1 April 2024:
  • a method of working out how much leave an irregular hour or part-year worker has accrued when they take maternity or family related leave or are off sick; and
  • new ‘rolled-up holiday pay calculations’ to allow employers to pay workers an additional 12.07% of pay to account for holiday pay as it is accrued.

Why is this important?

It is important that workers accrue the correct amount of annual leave and that they have the opportunity to take and be paid for that leave or benefit from ‘rolled-up’ holiday pay to account for the leave that they have accrued.

Errors by employers can lead to workers being short-changed for their annual leave entitlements which can lead to disputes and, potentially, claims in the Employment Tribunal. Some claims that may crystalise on termination can be capable of being backdated to the commencement of the worker’s employment / engagement, so the risks associated with poor annual leave practices could attract significant liabilities.

Talk to us

If you have any questions in relation to the reforms, or in relation to your annual leave practices, please get in touch by calling 0345 872 6666 or by completing or online enquiry form.

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