Some welcome new rules have been introduced in the Working Time Regulations about holiday pay and entitlement for part-year and irregular hours workers as well as defining in legislation what elements of pay must be included in holiday pay. Here, we consider what the changes are and what you need to do to ensure that you are compliant. The government has also issued specific guidance about the changes, which can be found here.
What is an irregular hours worker?
An irregular hours worker works “wholly or mostly variable” paid hours in each pay period. They could be on a permanent contract, a zero-hour contract, or be working casually. The key point is that their hours are not fixed i.e. the number of hours they work varies each week.
What is a part-year worker?
A part-year worker works only for part of the year. This means that there are periods in each year of a least one week when they are not required to work and for which they are not paid. They may have fixed hours of work. A common example is teachers who only work during term-time.
What are the changes for these two types of workers?
First, the accrual of leave
For leave years beginning on or after 1 April 2024, holiday entitlement for irregular hours workers and part-year workers will be calculated in hours and will accrue at the rate of 12.07% of the hours worked in a pay period. This 12.07% accrual rate derives from the fact that the standard working year is 46.4 weeks (i.e. 52 weeks less 5.6 weeks minimum statutory holiday entitlement), and 5.6 weeks is 12.07% of 46.4.
For example: An employee works irregular hours and is paid monthly. The company leave year started on 1 April 2024. The employee is entitled to the statutory minimum holiday entitlement of 28 days. In June, the employee works 68 hours. To work out how much holiday they have accrued in June, you work out 12.07% of 68 hours, i.e. 8 hours of holiday has accrued in June (rounded down from 8.02 as it is less than 30 minutes over).
Second, rolling-up holiday pay is now permitted
The term “rolled-up” holiday pay refers to the practice of paying an employee’s holiday pay at the same time as basic pay (i.e. “rolling” the two payments together). The holiday pay must be itemised separately on each payslip. The worker then does not receive pay for holiday when they actually take annual leave because they will already have been paid for it.
Now, firms have the option to pay irregular hour workers or part-year workers rolled-up holiday pay. Although many employers already did this, there was legal uncertainty about the lawfulness of the approach. However, the new legislation means that this method can be applied to these two categories of workers so long as they meet the relevant definitions. If you do not want to pay rolled-up holiday pay, you can pay holiday pay when holiday is taken.
Note that, for workers who are not irregular hours or part-year workers, there is no change in how their statutory holiday entitlement is accrued.
For example: Using our example above, if the employee were paid £13 per hour, they would receive holiday pay of £104 (less the usual tax deductions) in their June payslip.
What if workers on “rolled-up” holiday pay, do not take their holiday?
All workers are legally entitled to 5.6 weeks of paid statutory holiday entitlement per year, and they should be actively encouraged to take this holiday. Since they would be paid for their holiday as they work, they might not be inclined to take holiday. However, they should be actively encouraged to do so to minimise the risk of claims. A record of the holidays they take should be kept so you can establish that workers have taken the holiday to which they are entitled. This is because, under the new regulations, workers can carry forward untaken holiday (up to 20 days) if their employer does not do the following:
- recognise their right to paid annual leave; or,
- give them a reasonable opportunity to take leave or encourage them to do so; or
- warn them of the risks of losing their annual leave entitlement at the end of the holiday year.
Employers should therefore issue a regular reminder perhaps every quarter encouraging staff to take holiday and that if they fail to take it, it will be lost (subject to any company carry over policies, family-leave, or sick leave provisions).
Is there anything else we need to be aware of?
The 5.6 weeks’ holiday entitlement consists of four weeks’ Working Time Directive (WTD) holiday and an additional 1.6 weeks’ Working Time Regulations (WTR). WTD leave is paid at what is called “normal remuneration”, whereas WTR leave is based on basic pay. Most employers tend to pay both types of leave at the same rate for simplicity, but the distinction will continue.
Over the years, there has been considerable caselaw about what elements of pay “normal remuneration” includes. With effect from 1 January 2024, “normal remuneration” is specifically expressed in legislation to include various elements, such as payments linked to the performance of tasks which the worker is contractually obliged to perform, e.g. commission payments; overtime payments; and, payments for professional or personal status relating to length of service, seniority or professional qualifications.
How 3CS can help
Holiday entitlement and holiday pay is a complex legal area. In light of the changes introduced this year, all employers should review the make-up of their workforce to check whether there are any irregular hours workers or part-year workers and whether their current holiday pay arrangements are compliant with the regulations. Employers should also consider whether their holiday policies are up to date. We can provide legal advice and support to assist with all aspects of holiday pay and entitlement.
Please get in touch with your usual 3CS contact for more information.
