Changes To Holiday Pay In 2024
Author: Laura Spence
Key Contact: Claire Knowles
Earlier this month it was confirmed that a number of changes are coming into effect this year, regarding holiday pay. The changes are set to be the most significant changes to holiday pay for some time, so it is important that organisations are aware of what they are. The changes mainly affect atypical workers, including part year workers and casual workers however, some of the changes can be rolled out for all staff, if employers choose to do so. The key changes to be aware of are:
Holiday accrual system for part year and irregular hour workers
A new holiday entitlement system that provides that holiday will be accrued based on 12.07% of the hours worked by the individual in the previous pay period is being introduced for irregular hour and part year workers. This effectively revokes recent case law of Harpur Trust v Brazel which provided that holiday should be calculated by working out the worker’s average pay over the proceeding 52 weeks and applying it to the length of the contract, including time not worked.
This change applies only to irregular and part year workers and will take effect for leave years commencing on/after 1 April 2024. Usefully, the legislation tells us that ‘irregular hours worker’ are those whose hours in each pay period are wholly or mostly variable under the terms of their contract. A ‘part year worker’ is someone who is only required to work part of the year under their contract and who has periods within the year of a least a week where they do not work and are not paid.
Rolled up holiday is now permissible
It is now permissible for irregular and part year workers to have their holiday pay ‘rolled up’. This involves including an additional amount of holiday pay with their regular wages throughout the year, rather than paying them for it when it is taken. Again, this will apply for holiday years commencing on/after 1 April 2024.
If employers choose to roll up holiday, it must be calculated by using the 12.07% method explained above. It’s important to note that the holiday pay needs to be clearly itemised on the worker’s payslip, distinguishing it from wages, and records should be kept to demonstrate compliance.
Carry over of annual leave
The Government have confirmed the following provisions regarding carry over of leave:
- 5.6 weeks’ can be carried over if leave cannot be taken due to family related leave such as maternity leave, adoption leave and shared parental leave.
- 4 weeks’ can be carried over where it could not be taken due to sickness (for a maximum of 18 months).
- 4 weeks’ can be carried over if the employer fails to recognise the worker’s right to take leave, failed to give reasonable opportunity to take it, or failed to inform the worker that they would lose their leave if it’s not used by the end of the year.
We recommend carrying out a review of untaken holiday and communicating entitlement clearly to staff.
Covid carry over
During the pandemic legislation was introduced to enable workers to carry over holiday for up to 2 years. This right is now coming to an end, meaning all carried over leave attributable to Covid needs to be taken by 31st March 2024! We suggest a review is done of untaken holiday and all relevant staff are informed that such leave must be used or lost.
For the purpose of calculating holiday pay, it has been confirmed that ‘normal pay’ will include:
- Regular overtime.
- Commission payments that are linked to the performance of tasks contractually obliged to carry out.
- Payments relating to professional or personal status, such as those based on length of service, seniority or professional qualifications.
- Other regular payments, contractual or not, that have been a consistent part of the worker’s earnings in the proceeding 52 weeks.
Due to the potential consequences of getting holiday wrong, we suggest organisations ensure they are aware of the changes and take measures now to consider how they can best implement them. Employers that effectively adapt to the regulations will mitigate risk of claims and disputes, which often have costly consequences.
Employers should note that expanding the scope of what constitutes holiday pay, including elements of commission, may lead to an increase in their overall financial commitments. This will be particularly prevalent for roles where large sums of commission is earned. It may therefore be necessary to re-evaluate financial strategies and budgeting to accommodate for the changes.
As always, holiday entitlement and holiday pay remain technical, and should be assessed with great care. If you have any queries in relation to holiday pay, please get in touch with the Employment Team.