Holiday Pay Reform 2024: Get Ahead of the Curve

January 12, 2024

Categorised in: Laws & Regulations, News

As of 1 January 2024, the UK Government has introduced changes to the Working Time Regulations. The aim of this is to simplify holiday pay calculation and accrual for ‘irregular hours workers’ and ‘part-year workers’ as well as providing clear guidance around which workers fall into these categories.

Whilst these changes came into force at the start of this year its important to note that some of the most significant will only apply to annual leave years beginning on or after 1 April 2024. For irregular hours and part year workers holiday will accrue at 12.07% of hours worked each pay period, capped at 28 days. Holiday pay will be based on average weekly earnings, ignoring unpaid weeks.

If you’re unsure about the amount of entitlement then you can use the calculator provided on the Gov website.

One of the biggest shake ups means that ‘rolled-up’ holiday pay for these workers will now be allowed and recognised – a 12.07% uplift to regular pay in each pay period.

Why the change and what does this mean?

The aim of the Regulations has been to create more straightforward rules for employers managing irregular and part-year workers by removing confusion and preventing over and under payments in comparison to full time or fixed hour workers.

It should be pointed out that whilst the accrual of holiday and rolled up pay are grabbing the headlines there are a number of other regulations that the guidance details.

The new Employment Rights Regulations 2023, from 1 January 2024, will:

  • Define categories of 'irregular hours' and 'part-year' workers in relation to the new accrual method and rolled up pay.
  • Allow holiday to accrue based on hours worked, capped at 5.6 weeks.
  • Base holiday pay on an hourly rate calculated from average weekly pay.
  • Allow leave to be carried forward in certain circumstances – the number of days and the circumstances are detailed in the guidance.
  • End the provision of leave being carried over due to COVID 19
  • Introduce details around calculating accrual in respect of maternity, family related leave and sickness.
  • Allow holiday pay to be 'rolled up' and paid in regular pay periods.

The government has released a guidance document that provides a great deal of information and working examples of scenarios and calculations but its fair to say that this can be quite complex and will need some careful analysis to ensure employers do not fall foul. The guidance to Holiday Pay and Entitlement can be found here.

How can employers prepare?

The new rules certainly are a welcome change for employers and workers alike on several fronts but the impact will depend on the status of the workforce as well as the current holiday arrangements. However, its fair to say that rolled-up holiday pay will simplify administration and costs for those that choose to go down this route.

Employers wanting to prepare for the regulations should:

  • Audit your workforce and contracts to identify which of your workers qualify as irregular hours and part-year workers under the new regulations.
  • Check the holiday year for these workers – if you currently run a Jan to Dec holiday year you must decide if you wish to stick with this or change to an April – March year in order for rolled up holiday pay to kick in this year.
  • Ensure that your payroll system can manage holiday accrual under the new rules, rolled-up holiday pay and carry-over of previous leave and check that your current holiday pay processes are compliant with the new reference period.
  • Review your internal staff training to ensure that they all understand the new regulations and can discuss the impact with both workers and clients.
  • Communicate the changes clearly to eligible workers.

Dependent upon your current holiday year employers will have between 3 and 15 months to prepare for rolled up holiday pay and the new holiday pay calculations but, irrespective of your implementation date, you must ensure you are your staff have prepared accordingly for such big changes.

What does this mean for workers?

For those irregular hour and part year workers that engage with agencies or umbrella companies, there should be benefits. Rolled up pay will mean that payslips will clearly itemise the hourly rate and the holiday pay included. This transparency should limit the questionable providers that, in the past, have relied on those unclaimed “holiday pots” at the end of the year instead of it reaching the workers.

If an employer does decide to go down the rolled up holiday pay route then workers should be checking their payslips regularly to ensure this is reflected and that all paperwork (Key Information Document and Contract) has been updated to reflect the new status.

For most employers, and workers, the new regulations are a welcome change and long overdue, they bring clarity and transparency to an area of employment law that was shrouded in grey thanks to the Harpur Trust case of 2022. For others it may seem like an administrational nightmare but what cannot be disputed is that change was needed and its finally been delivered.

For further guidance on how we can help you and your business navigate these changes, please contact us here.