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Government outlines changes to holiday pay and other annual leave provisions

After a long wait, the government has finally released its responses to consultations on reforms to retained EU laws and the calculation of annual leave entitlement for part year and irregular hours workers.

This article focuses on changes to annual leave pay and other provisions. 


Please refer to this page for changes to EU laws.


Rolled up holiday pay

Rolled up holiday pay will become lawful again but only for irregular hours workers (for example zero hours workers) and part year workers. It must be calculated based on total earnings in the pay period.

Any holiday pay MUST be shown on a separate line on the workers pay slip.  Please speak to your payroll provider to ensure they do this. 


This change will be applicable for leave years that start on (or after) 1st April 2024.

 

Calculating leave entitlement and pay for irregular hours workers and part year workers

The effect of the Harpur Trust v Brazel decision meant that those workers on irregular hours, or part year workers (e.g. term time only workers) were entitled to 5.6 weeks holiday, irrespective of how many weeks a year they worked. 

 

The government consulted on this and from 1st April 2024 how much annual leave an irregular hours worker or part year worker gets will be calculated with an accrual method, in order to ensure leave is based on hours actually worked in the year. Leave will be accrued based on 12.07% of hours worked in the pay period whatever that pay period may be i.e. monthly, weekly, daily.

 

This example shows the impact of this change:

John works 12 weeks each year.  He is paid £500 per week for each week he works. 

Under the Harpur Trust decision his holiday pay would be £500 x 5.6 weeks = £2800

Under the new regulations where his pay is based on 12.07% of his salary it would be £724.20 (£500 x 12 weeks x 12.07% = £724.20). This is a significant financial difference to employers.


Therefore, from 1st April 2024 holiday pay for part year workers and those with irregular hours can be calculated at 12.07% of the hours worked in that pay period. Paying holiday pay this way (i.e. rolled up holiday pay) will simplify this process and will be welcomed by employers.


Defining irregular hours worker and part year workers

“Irregular hours worker” and “part year worker” are terms defined in law. Information published on gov.uk is helpful to understand these terms. Should an agency workers hours meet this definition, the rules on calculating annual leave entitlement will apply to them also.

 

Simplification of what is considered ‘normal renumeration’

Under the Working Time Regulations 1998 (WTR) statutory minimum annual leave is 5.6 weeks.  This is made up of two parts.  A basic allowance required by EU law of four weeks (regulation 13) and a domestic allowance of 1.6 weeks (regulation 13a).

 

The government consulted with a view to merge these two allowances but has concluded that the two regulations will remain.  This means that for holiday pay purposes there are slightly different arrangements. 

 

As shown on the right, for holiday pay purposes ‘normal pay’ will include commission and regular overtime payments.  This applies to the first four weeks of leave.  The 52 week reference period should be used to calculate the average pay, if this varies.  For the additional 1.6 weeks only payments based on basic salary apply.


This change comes into effect from 1st January 2024.

 

Accrual and carry over of annual leave from one year to the next

The new regulations also, for the first time, set out when a worker can carry over leave from one year to another and reflect decisions of the ECJ and other UK courts.

 

Workers can carry over leave if they:

  • have not been able to take it because their employer doesn't accept they have the right to paid leave (because, for example, they have been wrongly treated as self-employed)

  • have not had a reasonable opportunity to take it

  • aren't told by their employer that if they don't take leave by the end of the leave year, they will lose it

  • are too ill to take it

  • are unable to take it because they are on different type of leave such as maternity, shared parental leave or adoption leave

 

The regulations set out how much leave can be carried over and whether it can be rolled over into subsequent leave years.

 

Covid related holiday provisions

The emergency rules on annual leave implemented in 2020, meaning that workers could carry over four weeks of leave into the next two leave years where it was not reasonably practicable for them to take it due to the effects of Covid, will be removed.

 

From 1 January 2024, the normal rules will apply meaning 1.6 weeks can be carried over to the next leave year where there is written agreement between employer/employee. Any “Covid carry over leave” accrued by that date but not taken must be taken by 31 March 2024.


If you have any questions about these changes, or how they affect your organisation, please contact me.  

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