In November 2023 the government announced draft legislation to implement changes to the rules surrounding holiday pay. The changes will take effect for the holiday years commencing 1 April 2024. 

Holiday pay in the UK has been heavily influenced by EU law and employment tribunal cases, however legislation introduced in 2023 gave the government the power to revoke all existing EU legislation and related principles, unless it was restated or replaced. Further to this, the Supreme Court ruling in the Harpur Trust v Brazel case concluded that part-year workers should receive full-time equivalent holiday entitlement. This caused a lot of confusion for employers, so in response the government’s legislation has been designed to address the issued cause by the case.

Two Key Changes

The changes will affect irregular hours workers, part-year workers and new sections will be included in the Working Time Regulations 1998 (WTR). Two key changes are:

• Holidays will be accrued based on 12.07% of the hours worked in the previous pay period.
• Employers can implement rolled-up holiday pay; it can be paid as an uplift of 12.07% to the normal rate of pay at the time the work is done, as opposed to being paid at the time the holiday is taken. 

This method to calculate holiday entitlement has been used by employers prior to the outcome of EU cases, the changes confirm a reversal of the Harper Trust decision. Employers will need to identify what workers this will affect. Draft legislation confirms that “irregular hours” means someone whose hours in each pay period are wholly or mostly variable under the terms of their contract. A “part-year worker” is someone who only works part of the year under their contract and who has periods within the year of at least a week where they do not work and are not paid.

In addition to the above, there are several other regulations that the guidance details, including defining workers’ categories, calculating accrual of maternity and family-related leave and sickness that employers must also comply with.

Classifying Workers - Part-year and irregular workers

There is a formal definition for individuals categorised as "part-year" or "irregular hours" workers. According to the Regulations a "part-year" worker is defined as an individual contracted to work only during a portion of a leave year. There are specific periods, comprising at least one full week, during which they are not contracted to work and consequently are not remunerated. This classification typically includes those working in the hospitality industry.

On the other hand, an "irregular hours" worker is someone whose working hours and corresponding pay vary wholly or predominantly during each pay period. This classification typically includes casual workers, those operating under zero-hours contracts.

With these kinds of workers, from the beginning of the leave year 1 April 2024, employers can calculate holiday entitlement by using the old method of calculation 12.07% of hours worked to find the amount of statutory holiday owed.

Carry over of leave

Workers who have been unable to take the annual leave they were entitled to, because they were on maternity or other family-related leave, can carry over all their holiday entitlement to the following leave year. The regulations also allow workers to carry over a maximum of 4 weeks' leave under the following circumstances:

1. An employer has refused to pay a worker for their entitled leave.
2. When the worker has had the opportunity to take their leave or has not been actively encouraged to do so.
3. When the employer has failed to inform the worker that not taking their leave would result in a loss of days.
4. If the worker has been incorrectly categorised as self-employed and hasn’t been given any leave.

Employers should be aware that employees have until the 31 March 2024 to carry over any Covid-related leave accrued before 1 January 2023. 

Defining Normal Remuneration

The legislation has confirmed that employees have a right to receive their normal remuneration for 20 days of their holiday entitlement. Under the reforms, four weeks of the minimum 5.6 weeks’ paid holiday entitlement must be paid at a worker’s normal rate of pay, while the rest can be paid at a basic rate of pay.
The guidance says that the normal rate of pay must include “payments, including commission payments linked to the performance of tasks that a worker is contractually obliged to carry out, and payments relating to professional or personal status relating to length of service, seniority, or professional qualifications.”
Payments for overtime that have been regularly paid to a worker in the 52 weeks preceding the calculation date must also be included when calculating the normal rate of pay.

The government has produced some useful guidance about what these rule changes mean and how to deal with different scenarios. You can access this by clicking here.