On 8 November 2023, the government announced changes to the way in which holiday pay is calculated for irregular hours and part-year workers (such as those who work only during term time).
Following the Supreme Court’s decision in Harpur Trust v Brazel which held that irregular hours and part-year workers were entitled to the full 5.6 weeks holiday entitlement (not pro-rated to the amount of work they actually perform each year), the government launched a consultation which sought to understand the implications of the judgment on different sectors within the UK.
The ruling in Harpur Trust v Brazel caused two main issues:
· Significant cost implications for employers. The decision resulted in part-year workers receiving greater holiday pay than those working the same number of hours spread evenly across the year.
· Holiday pay calculations. The judgment explained how holiday pay for irregular hours and part-year workers should be calculated – using average weekly pay from the 52 weeks preceding the particular period of holiday, excluding weeks not worked. The implementation of this method has caused practical problems for employers and their payroll departments as the administration processes has been overcomplicated.
The government was keen to address the perceived unfairness and to make calculations easier for employers.
What are the new rules going to be?
1. Clarifying the definition of a ‘week’s pay’
Under the draft regulations, a ‘week’s pay’ for holiday under Regulation 13 Working Time Regulations 1998 (WTR) will include:
· Payments which are intrinsically linked to the performance of tasks which the worker is obliged to carry out (e.g. commission payments);
· Payments for professional or personal status relating to length of service, seniority or professional qualifications; and
· Payments which have been regularly paid to a worker in the 52 weeks preceding the calculation date (e.g. overtime payments).
Employers should note that the amended definition of a week’s pay will only apply to the 4 weeks EU law holiday entitlement (regulation 13 WTR) and not the 1.6 weeks additional domestic entitlement (regulation 13A WTR).
2. Calculation of holiday entitlement for irregular hours and part-year workers
Employers will be able to chose from two systems for paying holiday pay to irregular/part-time workers:
1. Paying holiday pay when holiday is taken. This is calculated at the rate of a week’s pay for each week taken, a week’s pay being the average weekly pay over the previous 52 weeks.
2. Pay rolled-up holiday pay. The concept of ‘rolled-up holiday pay’ allows employers to not make a holiday payment while the worker is on holiday, but instead make an additional payment in each payslip during working time. Despite being ruled as unlawful by the European Court of Justice over concerns that it discourages workers from taking time off, the new rules allow for this approach to be used for irregular hours and part-year workers.
This will be calculated as an additional 12.07% on top of the worker’s remuneration for work done in each pay period. There will be a 52-week averaging system to calculate rolled-up holiday pay for workers on sick or statutory leave.
3. Carry-over rights. Workers will have the right to carry over holiday from one leave year to the next if any of the following apply:
· The worker cannot take some or all of their leave because they have taken statutory leave (such as maternity leave, adoption leave etc) or as a result of sickness.
· Where the employer fails to recognise a worker’s right to leave; fails to give the worker reasonable opportunity to take leave and fails to inform the worker that leave not taken by the end of the leave year will be lost.
4. Removal of Covid-19 carry-over rules
From 1 January 2024, the legislation which was introduced to allow rollover of holidays (for two years in certain circumstances) during the covid-19 pandemic will be revoked.
Employers should bear in mind that whilst these changes are intended to come into force on 1 January 2023, the changes will apply to leave years starting on or after 1 April 2024. If for example, your leave year commences 1 January 2024, these rules won’t apply to you until 1 January 2025.
How can Tozers help?
At Tozers we understand that keeping up to date with changing legislation can be overwhelming for employers. That's why our team of specialist employment lawyers is here to help you navigate through the recent changes to holiday pay rules.
For further help and advice, please contact our specialist employment lawyers.