The UK Government has issued new guidance on holiday pay aimed at simplifying calculations and clarifying entitlements, particularly for irregular hours and part-year workers.
The Department for Business and Trade’s guidance on holiday pay and entitlement reforms outlines how employers should apply recent changes to the holiday pay provisions of the Working Time Regulations, as set out in the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, which took effect from 1 January 2024.
The key changes are as follows:
Calculating holiday entitlement
The new rules introduce a uniform 12.07% accrual system when calculating holiday entitlement for irregular hours and part-year workers.
To calculate statutory annual leave entitlement, the worker’s actual hours worked in a pay period should be multiplied by 12.07%.
This change clarifies the position following the Supreme Court decision in Harpur Trust v Brazel, and will apply to annual leave years beginning on or after 1 April 2024.
The guidance also stipulates that regular payments such as overtime, bonuses and commission should be also be included when calculating holiday pay for irregular hours and part-year workers.
Rolled-up holiday pay rules
The new rules clarifies that part-year and irregular hours workers are entitled to a 12.07% uplift in their normal, regular pay rather than their holiday pay being paid when taken. This applies to leave from 1 April 2024.
Under the guidance, when a worker leaves employment partway through a leave year, the employer should check if they have received the minimum number of statutory holidays per their entitlement. Payment in lieu should be given for any unused leave.
In these circumstances, the statutory annual leave entitlement is pro rata’ed by taking the worker’s full year entitlement and multiplying this by the proportion of leave year the worker was employed for.
Calculating holiday entitlement for workers with a fixed number of hours each week, but whose daily hours vary.
In situations where employees work a set number of hours every week but not the same number every day, statutory leave entitlement is to be calculated in days, then multiplied by the avereage duration of their working day.
The guidance defines the average working day as hours worked per week divided by days worked per week.
Workers are no longer allowed to accrue Covid-19 carryover leave from 1 January 2024.
In addition, a grace period has been introduced to allow those with pandemic-related holiday carry-over until 31 March 2024 to utilise their extra days before they are lost.
Employers are advised to take action to ensure compliance with the new rules. This could include reviewing all relevant policies, procedures and systems, and ensuring all relevant personnel are aware of the changes, for example through informative communications and training.
Last updated: 12 January 2024