Understanding legislation changes to holiday pay and entitlement

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In June 2023, the Retained EU Law (Revocation and Reform) Act 2023 (“REUL”) received Royal Assent which meant much of the case law brought in by EU courts could be reconsidered by High Courts of the UK.

In addition to this, the UK Government also decided to reverse the decision made in the Harper Trust v Brazel case, which previously stated that it was unlawful for employers to be using the 12.07 per cent holiday pay calculation for employees.

The government hopes these changes will simplify the rules surrounding holiday pay and leave.

Changes with effect from 01 January 2024:

  • Further clarification has been included concerning the calculation of normal pay, according to the Regulations, normal pay is defined as:
  • payments, including commission payments, that are intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out;
    payments for professional or personal status relating to length of service, seniority or professional qualifications; and
  • other payments, such as overtime payments, that have been regularly paid to a worker in the 52 weeks preceding the calculation date.

These calculations are only relevant to the four weeks of holiday leave (derived from EU law). The additional 1.6 weeks of leave can be paid at the “basic” rate of pay.

Workers can carry forward up to 28 days of holiday leave into the following leave year, if:

  • They have been on maternity or other family-related leave;
  • They have been on sick leave (they can only carry over four week’s annual leave derived from EU law);
  • The employer has failed to recognise a right to holiday or a right to paid holiday.
  • The employer hasn’t given them a reasonable opportunity to take their holidays or has failed to encourage them to do so;
  • The employer fails to notify the worker that holiday entitlement will be lost at the end of the leave year.
  • Workers are no longer able to carry forward any leave that could not be taken due to the impact of coronavirus. Employers should inform their workers that any leave carried forward because of Covid-19 must be taken before 31 March 2024.

Changes with effect from 01 April 2024:

  • Employers with a leave a leave year beginning on or after 01 April 2024, can calculate holiday leave & pay for irregular and part-year workers by multiplying the number of hours worked in a pay period by 12.07 per cent.

Two new definitions for irregular hours workers and part-year workers have been added to the Working Time Regulations 1998 (“WTR”). These are as follows:

Irregular
A worker whose number of paid hours that they will work in each pay period under the terms of their contract is wholly or mostly variable.

Part-year
A worker who under the terms of their contract, is 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.

Employers will also be able to pay irregular and part-year workers holiday pay in each pay period they work based on the 12.07 per cent calculation, this is called rolled-up holiday.

The Pierce payroll team are expert advisors that can guarantee compliance including any recent or upcoming legislation changes. Contact the team today for any help, or advice or if you are considering outsourcing your payroll.

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