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In November 2023, the government announced a significant change to the law on holiday, confirming it will legislate to allow rolled-up holiday pay for irregular hours and/or part-year workers and introduce a new system for calculating holiday entitlement for those workers.
As a festive treat, we thought we would outline some key aspects to bear in mind in relation to the pending legislation – perhaps one to revisit in the New Year!
The new regulations will apply only in relation to leave years which start on or after 1 April 2024. So those employers who have holiday years in line with the calendar year will not be able to change the approach until 1 January 2025 (unless you change your holiday year).
The new regulations will only apply in England, Scotland, and Wales – not in Northern Ireland.
Nothing changes in relation to holiday accrual, or holiday pay for workers who are not an irregular hour or part-year worker. They will continue to be entitled to 5.6 weeks' annual leave per year, and holiday pay should be paid at "normal remuneration" for the first 4 weeks (which means factoring in commission, regular overtime and shift allowances). In practice, many employers pay all 5.6 weeks using a "normal remuneration" approach. Because of the recent Supreme Court decision in Agnew, as well as the draft regulations, you should check that you are already correctly factoring the appropriate payments into your holiday pay calculations.
The new regulations will only apply to two types of workers - irregular hours worker and part-year worker.
An irregular hour's worker: A worker whose number of hours that they will work in each pay period is, under the terms of their contract "wholly or mostly variable". This appears to capture many zero hours workers and variable hours workers (who are contracted to have variable hours).
Just to be clear, it does not capture workers whose contracted hours are fixed, but where the working pattern in which they will work them varies.
A part-year worker: A worker who is only required, under the terms of their contract, to work part of the year with periods within that year (during the term of the contract) of at least a week where they are not required to work and are not paid. This appears to capture hourly paid term time only workers and seasonal workers (but arguably not those who are contracted to work term time but paid in regular monthly instalments).
For leave years which start after 1 April 2024, consider dealing with your workers in two groups at the start of each leave year:
This is so that holiday entitlement will accrue in hours (not weeks) on the last day of each pay period based on 12.07% of the actual hours worked in that pay period (and subject to a maximum of 28 days per year, although it is not clear how many hours this amounts to).
Where a worker has been absent owing to sick leave or family-related statutory leave, a 52-week reference period will be used to calculate the amount of holiday accrued in that time.
You can, if you want, implement "rolled-up" holiday pay by paying an uplift of 12.07% of all pay for work done at the time the work is done (instead of when the worker takes holiday).
If you want to utilise rolled-up holiday pay you need to:
The government's draft regulations codify the effect of a series of European decisions about when holiday can be carried over from one leave year to the next. Both "classical" and irregular hours/part-year workers will have a right, under the WTR, to carry over leave:
This is a seemingly ever-changing area of law, which is likely to cause headaches for employers in the years to come as and when the meaning of aspects of the new regulations are tested in the courts.
For specific advice about impact or implementation for your workforce, please contact us.