New holiday pay rules 2024

Last year the Government announced a major update to the law on holidays to be implemented in 2024 through The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023. The regulations came into force, and have been operating since, the 1 January 2024. The Government’s intention was to simplify holiday entitlement and holiday pay rules, and there is a focus on the rights of part-year and irregulars hour workers. It is important that both employers and workers understand the changes that have been made to the law on holidays.

Irregular hour and part-year workers

The regulations introduce a new holiday entitlement for part-year and irregular hours workers.

Firstly, it is important to understand who irregular hours and part-year workers are. The definitions are as below:

“A worker is an irregular hours worker, in relation to a leave year, if the number of paid hours that they will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable.”

“A worker is a part-year worker, in relation to a leave year, if, under the terms of their contract, they are required to work only part of that year and there are periods within that year (during the term of the contract) of at least a week which they are not required to work and for which they are not paid.” This does also include part-year workers that might have fixed hours, e.g., teaching assistants in term time.

For workers who are not irregular hours or part-year workers, holiday entitlement will accrue in the usual way. However, for leave years that begin on or after 1 April 2024, there is a new holiday entitlement accrual method for irregular hours and part-year workers. Holiday entitlement for these workers can be calculated as 12.07% of actual hours worked in a pay period (up to a maximum amount of 5.6 weeks a year). An average over a 52-week reference period will be used to calculate the amount of holiday accrued during a period of statutory or sick leave. Under these regulations, pay period means how frequently a worker gets paid, such as monthly or weekly.

There are two systems that an employer may choose from to pay this holiday pay:

1. An employer can pay holiday when holiday is taken, this is calculated at the rate of a week’s pay for each week’s holiday. A week’s pay will be calculated as the average amount of weekly pay over the previous 52 weeks.
2. An employer can pay rolled-up holiday pay. This is an uplift of 12.07% to the workers remunerations for work in each pay period. Workers must be allowed to take holiday but won’t be paid at the time it is taken.

It is important to note that the new rules only apply to leave years beginning on or after 1 April 2024. So, for an employer that runs their leave years from 1January to 31 December, the rules will not have an effect until 1 January 2025.

What is a week’s pay for holiday pay purposes?

The regulations also provide for certain payments to now be included within the meaning of a week’s pay for holiday pay calculations. A week’s pay for holiday purposes now includes:

• Payments, including commission payments, which are intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract
• Payments for 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

This new definition will apply for part-year and irregular hours workers and will apply to the full 5.6 weeks holiday entitlement. For regular hours workers however, it will apply for the four weeks of ordinary Working Time Directive statutory holiday, but it will not apply to the 1.6 weeks of additional domestic holiday. The government has done this to keep the holiday which derived from the Working Time Directive and the purely domestic additional 1.6 weeks holiday separate and distinct.

Carry-over leave

The regulations introduce the ability for workers to carry-over holiday to another year in various circumstances. The regulations also remove the temporary carry-over rules introduced during Covid-19, and workers have until 31 March 2024 to use any accrued carry over leave.

Under the new regulations workers can carry-over holiday when:

• They are not able to take some or all of their leave as a result of taking a period of statutory leave (e.g., maternity leave). They can carry over any untaken leave into the following leave year.
• They are not able to take some or all of their leave as a result of taking a period of sick leave. The carried over leave must be taken within 18 months of the leave year it relates to.

Particularly important to employers is their understanding of the following situations when a worker can also carry-over some or all of their holiday. Holiday can be carried over due to an employer’s failure to:

• Recognise a worker’s right to annual leave or paid annual leave
• Give the worker a reasonable opportunity to take the leave they are entitled to and encourage them to do so
• Inform the worker that any leave not taken by the end of the leave year, which cannot be carried forward, will be lost

How we can help

It is clear that the new holiday pay rules introduce important changes to the law on holidays here in the UK. Employers should review their practices. For example, they should ensure they are proactive in encouraging their workers to take leave and informing them clearly that they are entitled to do so. Employers should also review their holiday policies and employment contracts to ensure that these are reflective of the new rules.

If you are an employer or worker and require advice on the operation of the new holiday pay rules, our Employment Team would be happy to help.

Our Employment Law solicitors are based in Maidstone and Canterbury and are ready to help with any legal advice you may require so please get in touch today.

This content is correct at time of publication