The government has announced some significant changes to holiday entitlement and the way in which holiday pay is calculated.
The new legislation is intended to introduce a more simplified process and addresses concerns over the complexity of statutory working time rights.
The reforms come as a result of a government consultation on proposals to amend the calculation of holiday entitlement under the Working Time Regulations 1998 (WTR).
The guidance, published by the Department for Business and Trade (DBT), is a response to a consultation on these three key areas:
- Simplifying annual leave and holiday pay calculations in the Working Time Regulations;
- Record keeping requirements under the Working Time Regulations 1998 (WTR); and
- Consultation requirements under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
There will be several welcome additions and adjustments amongst the regulations, specifically the use of rolled-up holiday pay for irregular hours workers. However, some of the reforms are quite technical and may instigate questions over how they should be implemented and conveyed to employees.
Here we address some of the headline reforms and what they mean for employers and employees.
Holiday pay and entitlement reforms
Simplifications of the rules governing holiday entitlement and holiday pay calculations have been introduced in the Working Time Regulations.
From 1 January 2024, the following rules apply:
Holiday pay calculations – entitlement for full-year workers
All full-year workers are legally entitled to 5.6 weeks of paid statutory holiday entitlement per year. Four weeks of this entitlement must be paid at a worker’s ‘normal’ rate of pay and the remaining 1.6 weeks’ entitlement can be paid at the ‘basic’ rate of pay.
The reforms define specific payments that must be included in the 4 weeks of ‘normal’ holiday pay, these include
- Payments, including commission payments, intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out;
- Payments relating to professional or personal status relating to length of service, seniority or professional qualifications; and
- Other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date.
Carryover of leave
There is clarification on the rights of employees to carry over leave from one year to the next.
If any worker is unable to take some or all of their statutory holiday entitlement, as a result of taking a period of maternity or other family related leave, they will be entitled to carry forward up to 28 days of their untaken leave into the following leave year.
If a worker working regular hours all year round is unable to take some or all of their statutory holiday entitlement as a result of being off sick, then the worker will be entitled to carry forward up to 20 days of their untaken leave into the following leave year.
Removing the Working Time Coronavirus Regulations 2020
Workers can no longer accrue COVID carryover leave (up to four weeks) – they will have until 31 March 2024 to use any leave accrued prior to 1 January 2024.
For leave years beginning on or after 1 April 2024, the changes include:
Calculating holiday entitlement for irregular hours and part-year workers
There is a new accrual method for irregular hour workers and part-year workers in the first year of employment and beyond.
Holiday entitlement will be calculated at the end of each pay period, rather than monthly, to give flexibility to employers. Entitlement for irregular hours and part-year workers will be calculated as 12.07% of actual hours worked in a pay period.
Calculating statutory holiday entitlement accrued by irregular hours and part-year workers while they are on maternity or family related leave or off sick
This will follow the same principle as the accrual method for statutory holiday entitlement, and it also introduces a 52-week reference period, enabling employers to look back and work out an average of hours worked across that period.
Rolled-up holiday pay for part-year and irregular hours workers
Rolled-up holiday pay allows employers to include an additional amount with every payslip to cover a worker’s holiday pay, as opposed to paying holiday pay when a worker takes annual leave.
Employers can use rolled-up holiday pay as an additional way of calculating holiday pay. The calculation of holiday pay by employers is 12.07% of a worker’s total pay.
Rolled up holiday pay should be paid at the same time as the worker is paid for the work done in each pay period.
The Working Time Regulations have been amended to make it clear that employers are not required to keep a record of the daily working hours of each worker, if they are able to demonstrate compliance without doing so.
Transfer of Undertakings (Protection of Employment) Regulations (TUPE)
From 1 January 2024 it is no longer a requirement for employers to consult with affected employees via representatives on a TUPE transfer if their business employers fewer than 50 employees, or (for transfers on or after 1 July 2024) where a TUPE transfer involves fewer than 10 employees (regardless of the size of the employer).
The new legislation presents some important changes to holiday rules under WTR and requires employers to ensure they are correctly assessing the status and working arrangements of all their workers.
Many of the changes will be welcomed by employers and employees alike as they help to provide clarity around what are complex regulations.
In particular, the reforms offer much needed guidance around holiday pay entitlement for irregular and part-year workers, an area that can present its own challenges and ambiguities. Employers should ensure they are familiar with the definitions of irregular hour and part-year workers, enabling them to identify the employees that fall under these categories and the new calculation method for statutory holiday.
Employers should review their policies and procedures to make sure they are taking the reforms into account. The guidance focuses on the legal minimum entitlement of 5.6 weeks’ paid holiday. Some workers will have additional paid holiday, beyond the statutory minimum – contracts should be checked and, where required, legal advice sought.
Having the right systems and reporting in place will support a smooth payroll process and compliance with the new regulations. Effective communication with employees is key, making them aware of any changes, the amount of holiday they can take, and how much they will be paid.
Download our Reforms to Working Time Regulations and TUPE factsheet below for full details of the reforms.