Holiday Pay Briefing
12 February 2024
The law is changing. If you engage individuals who work irregular hours, or who work for only part of the year, you need to review your method of calculating annual leave entitlement and holiday pay for holiday years commencing on or after 1 April 2024.
Annual leave and holiday pay are two distinct items. For irregular hours or part year workers there will be one method of calculating annual leave entitlement.
However, there will be two different methods of calculating and paying holiday pay and you can use either or both. The method that you choose will alter the way that you calculate the holiday pay due to your employees.
You need to;
- Decide which holiday pay calculation(s) you will use and when it needs to be implemented
- Check that your payroll software can cope with your requirements
- Decide how the change will be implemented – how will this alter what you currently do?
- Review and update contract clauses, annual leave policy, employee handbook, pay slips and Key Information Documents
- Communicate with your workforce to explain the changes
The Technical Bit
The Working Time Regulations 1998 have been amended to change the method of calculating statutory holiday entitlement and holiday pay for workers who work irregular hours or for only part of the year.
An Irregular Hours Worker is defined as somebody whose paid hours of work are wholly or mostly variable (Regulation 15F(1)(a)).
A Part-Year Worker is defined as somebody whose contract of employment requires them to work only part of a year and there are contractual periods of at least one week where the worker is not required to work and for which they are not paid (Regulation 15F(1)(b). Part-year workers may have fixed hours during the periods that they do work.
Annual Leave Calculation
For annual leave years commencing on or after 1 April 2024, irregular hours workers’ or part-year workers’ annual leave entitlement will be calculated as 12.07%* of the hours worked in any specific pay period (Regulation 15B(3)(b)), subject to a maximum of 28 days per annum. Where entitlement includes a fraction of an hour, it is to be treated as zero if it is less than 30 minutes and one hour if it is 30 minutes or more (Regulation 15B(5)).
* This is based on the assumption that a worker is entitled to 5.6 weeks annual leave per annum. If they are entitled to more annual leave than 5.6 weeks the percentage will need to be amended.
There is separate calculation in respect of annual leave for irregular hours and part year workers who are currently on sick leave or statutory leave (Regulation 15C).
Holiday Pay Calculation
The amended Regulations facilitate the calculation of holiday pay in two distinct ways;
- Rolled up holiday pay (Regulation 16A)
The amended Regulations now allow employers to pay holiday pay on a rolled up basis for irregular hours and part year workers only.
Where an employer wants to implement the use of rolled up holiday pay they should ensure that the workers’ contracts of employment facilitate this.
Where holiday pay is paid on a rolled up basis, it should be calculated as 12.07% of total pay in each pay period. The payment of holiday pay should be shown as a separate and distinct amount on the pay slip in addition to pay for the work done in the pay period.
- 52-week reference period (Regulation 16)
If rolled up holiday pay is not paid, holiday pay should be calculated based on average pay during the previous 52-week period (unless the worker hasn’t been employed for 52 weeks in which case such shorter period of employment should be used).
If a worker has not been paid during each of the previous 52 weeks, then the employer can go back further to build up data for 52 weeks, up to a limit of a 104 week period.
Data from weeks where the worker did not work but has been paid (e.g. because they were on holiday) should be included in the calculation.
There is a separate calculation which applies where a worker has been on sick or statutory leave during the relevant period.