New guidance published on changes to holiday pay rules intended to simplify calculations for irregular hours and part year workers
Following a consultation last year on the best way to calculate holiday pay for atypical workers, the Government has introduced the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 and accompanying guidance setting out examples of how the reforms will operate in practice.
The changes came into force on 1 January 2024 but many reforms will apply only to holiday years which begin after April this year. Until then, the previous rules continue.
Key changes:
- defining irregular hours workers and part-year workers in relation to the introduction of the holiday entitlement accrual method and rolled-up holiday pay
- introducing a method to calculate statutory holiday entitlement for irregular hours and part-year workers
- introducing a method to work out how much leave an irregular hour or part-year worker has accrued when they take maternity or family related leave or are off sick
- removing the Working Time (Coronavirus) (Amendment) Regulations 2020 which affect the accrual of COVID-19 carryover of leave
- maintaining the current rates of holiday pay where 4 weeks is paid at normal rate of pay and 1.6 weeks paid at basic rate of pay, whilst retaining the 2 distinct pots of leave
- defining what is considered ‘normal remuneration’ in relation to the 4 weeks of statutory annual leave
- introducing rolled-up holiday pay as an alternative method to calculate holiday pay for irregular hours workers and part-year workers
What is the difference between an irregular worker and a part-year worker?
The regulations state that a worker will be an irregular hours worker in relation to a leave year, if the number of paid hours that they will work in each pay period (e.g. monthly) during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable.
The most common example of this would be those workers who are on casual or zero hour contracts whereby their shift pattern varies from month to month with no certain, regular hours. In contrast, if a worker has a rotating shift pattern they would not qualify as an irregular hours worker where the contractual hours are fixed albeit vary on week 1 and week 2 of a regular pattern.
A part year worker is defined as someone who, in relation to a leave year, is required to work only part of that year under the terms of their contract and there are periods of at least a week during which they are not required to work and are not paid. The categorisation of a part-year worker essentially rests on whether or not the worker is paid during the weeks they are not required to work. By way of an example, a teacher who receives an annualised salary over 12 months but does not work for the 6 week summer holidays does not meet the definition.
How statutory holiday entitlement is accrued for irregular and part-year workers
For leave years beginning on or after 1 April 2024, there is a new method for calculating holiday accrual. Holiday entitlement will be calculated as 12.07% of actual hours worked in a pay period.
Rolled up holiday pay
Rolled up holiday pay is where a workers holiday pay is paid at the same time as their normal pay – it will allow employers to easily manage holiday for irregular and part year workers by simply paying an additional 12.07% of all pay for work done in the pay period. The holiday pay must be itemised separately to usual pay on the payslip and should an employee wish to take a holiday, they will not be paid any extra as it is already incorporated.
Need help?
The rules are complex and fact sensitive – we are here to help. Published guidance urges employers to seek full advice on specific circumstances as each employees case will be different. If you require assistance in this area or have any questions, please do not hesitate to contact us at [email protected].