Is Your Business Ready For Holiday Pay Changes In 2024?

Is Your Business Ready For Holiday Pay Changes In 2024?

 

In order to address the uncertainty around holiday pay and entitlement, which was further complicated by the 2022 decision of the Supreme Court in the case of Harpur Trust v Brazel, the Working Time Regulations (WTR) will be amended for those workers and employees who meet the definition of “irregular hours workers” and “part-year workers”. These amendments to the Regulations will allow for the accrual of holiday for these workers to be based on 12.07% of the hours worked in the previous pay period. A different percentage accrual rate will need to be used where workers are entitled to more than 5.6 weeks of leave.

Rolled-up holiday pay 

Prior to the changes to WTR,  under EU case law, the use of rolled-up holiday pay was not permitted and the Harpur Trust v Brazel decision solidified the position in the UK by confirming that the method of using 12.07% to calculate accrual for a part- year worker engaged under a contract of employment was not compliant with the law as it was at the time.

As a result of the amendment to the WTR, rolled-up holiday will be permitted for irregular hours and part-year workers only. This development means that employers of those types of workers will have the choice whether to “roll up” holiday pay or not.  

Employers that decide to use this method must uplift pay by at least 12.07% (for statutory minimum holiday, more if the holiday entitlement is more generous) each pay period. They must also include a separate section on the payslip which states how much holiday pay is included.  

Definitions 

To provide clarity for employers as to the application of the law, definitions for two key terms have been added to WTR, these are as follows. 

Irregular 

“The number of paid hours they [the worker] will work in each pay period during the term of their contract is, under the terms of the contract, is wholly or mostly variable. 

If worker has more than one contract with the same employer, whether their hours are wholly or mostly variable will be looked at in the round.” 

Part-year 

“Under the terms of their [the worker] contract, they are required to work only part of that year and there are periods within that year (during the term of the contract) of at least a week which they are not required to work and for which they are not paid.” 

Carry over and calculating leave and pay

The Regulations also introduce a statutory right to carry over leave that a worker was unable to take in the leave year because they were on sick leave. This was previously provided for in case law but has now been solidified in legislation. The carried over leave will be carried over into the following leave year for a period of up to 18 months from the end of the leave year in which it was accrued.

To calculate holiday carried over into another leave year which was accrued during statutory leave, employers will need to look back over a 52-week reference period which will allow employers to look back and work out an average of hours worked across that period. Employers will need to include weeks not worked and not on statutory leave so that leave accrued during this time is proportionate to the time actually worked.

When calculating holiday pay an employer could use the current 52-week reference period for holiday pay in accordance with S224 Employment Rights Act 1996 (ERA). This involves looking back at the last 52 weeks (or less if they have not been engaged for 52 weeks), taking out any weeks where they have not earned any pay or they have received statutory payments such as SSP (adding in additional weeks up to a maximum of 104 to give you the full 52 weeks where applicable). You add this together and divide by the number of weeks you are using to get the average weekly pay.

Obligation to inform 

An employer will have a statutory obligation to inform a worker of their entitlement to either leave or pay instead of leave (when rolled up holiday is selected), to provide them with the opportunity to take the leave and to inform a worker that any leave not taken by the end of a leave year will be lost. Again this obligation was previously provided for in case law.

What should be included in holiday pay

For the purposes of the 4 weeks of leave under the WTR, the Regulations confirm the following should be included when taking into account holiday pay:

  • payments, including commission payments, which are intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract;
  • payments for professional or personal status relating to length of service, seniority or professional qualifications;
  • other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date. In the case of a worker who on the calculation date has been employed by their employer for less than 52 complete weeks, the “relevant period” is the number of complete weeks for which the worker has been employed.

 

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