Changes to Holiday Pay: What You Need to Know

A recent court decision has led to simplifications in holiday pay rules, especially for those with irregular work hours. The UK government’s response to a consultation on holiday pay has clarified rules for employers with irregular hours workers. The new legislation outlines how to calculate holiday pay, including basic salary and additional elements like commission or overtime.

Key Changes Effective 1 January 2024:

• Record-keeping: Employers no longer need to record daily working hours for employees.
• COVID-19 Leave: Regulations allowing leave carry-over due to COVID-19 are revoked; any carried-over leave must be used by March 31, 2024.
• EU Case Law: Workers can carry forward leave if unable to take it due to other statutory entitlements or sickness, following EU case law.

What you need to know:

• For employers operating UK-wide, changes apply only in Great Britain.
• The three blocks of leave (four weeks, 1.6 weeks, contractual) remain, each with different pay calculations.
• New carry-over rules apply only to the block of four weeks.
• The definition of ‘normal’ pay for the four weeks is clarified, but it may differ from an employer’s current interpretation.
• Employers are advised to outline their definition of normal pay in policies and ensure payroll software can handle the calculation.

Changes Effective 1 April 2024:

• Leave accrual is set at 12.07% of hours worked in the pay period.
• Employers will have the flexibility to pay leave in instalments, including the option of rolled-up holiday pay. However, rolled-up holiday pay is not obligatory.
• In cases of sickness or other statutory leave, where leave is not paid or carried forward, both leave and pay can be moved to the subsequent leave year.

Cautionary Notes:

• Employers must adhere to the Harpur Trust principles until the first leave year starting on or after April 1, 2024, when calculating leave for irregular hours.
• Some aspects, like what constitutes ‘regularly’ paid overtime, remain unclear, requiring careful consideration to avoid non-compliance with the new legislation and potential litigation.

In conclusion, changes in holiday pay regulations in Great Britain bring clarity to the treatment of irregular hours and part-year workers. The introduction of a defined accrual method and the option for rolled-up holiday pay provide employers with flexibility. Additionally, the Regulations ensure rights for leave carry-forward, particularly during periods of sickness or statutory leave.

While efforts have been made to simplify the system, areas of ambiguity still exist, requiring employers to navigate these adjustments carefully. Staying informed and aligning policies with the updated regulations will be crucial for compliance and effective workforce management in this evolving landscape.