New Holiday Pay Guidance Published

The Government have reformed some aspects of the Working Time Regulations in respect of holiday entitlement and holiday pay in order to simplify what has recently become a complex topic. 

Statutory Holiday Entitlement

All full year workers are legally entitled to a minimum of 5.6 weeks of paid statutory holiday entitlement per year.  This is broken down into 4 weeks of EU derived holiday entitlement and 1.6 weeks of UK derived holiday. 

The 4 weeks of holiday entitlement must be paid at a worker’s normal rate of pay.  This should include all normal or regular payments such as regular overtime, bonuses and commission.

The 1.6 weeks of holiday entitlement can be paid at basic rate of pay only. 

Note: The government looked at amalgamating the two types of leave to have the same rules applying to all leave.  However, they did not agree this and the position has remained as above. 

What they did clarify is the components to be included when calculating the 4 weeks of normal holiday pay, specifically:

  • payments, including commission payments, intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out:
  • payments relating to 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.

Calculating Leave Entitlement for Irregular Hour and Part-Year Workers

Irregular hours and part-year workers holiday accrual and pay has recently been in turmoil due to a case that went all the way to the Supreme Court.  This complicated case prevented employers from using the percentage method of calculating holidays ie 12.07% of all hours worked. 

The government has now re-established this method of calculating holiday pay for irregular hours and part-year workers only.    This will 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 will overturn the effect of the Harpur Trust v Brazel decision.

Note: This reform will only apply to holiday leave years beginning on or after 1st April 2024.

Rolled up Holiday Pay

Rolled up holiday pay has also been re-established but again only for irregular hours and part year workers. It must be calculated based on total earnings in the pay period and will be calculated as a 12.07% uplift to the workers total pay for work done.  The 12.07% is paid at the same time as pay for the work done and the holiday pay must be itemised separately on the payslip.

Note: This reform will only apply to holiday leave years beginning on or after 1st April 2024.

Defining Irregular Hours Workers and Part Year Workers

“Irregular hours worker” and “part year worker” will be defined in law. Should any agency workers hours meet this definition, the rules on calculating annual leave entitlement will be applied to them also.

Leave Affected by COVID-19

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.

Any “Covid carry over leave” accrued by that date but not taken must be taken by 31 March 2024.

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