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The questions answered in this post are:
1. Holiday Pay Entitlements (from 1st January 2024)
What entitlements must holiday pay include?
Currently, employees have two separate holiday entitlements which accumulates to 5.6 weeks of statutory entitlement.
- 4 weeks’ leave based on EU law
- 1.6 weeks’ leave based on UK law paid at basic pay
Under EU law, the 4 weeks’ leave had to be paid at ‘normal’ pay. Of course, ‘normal’ pay was not defined. However, it was largely accepted that it would include pay for commission or other elements of pay that were linked to performance, and overtime. As an example, if someone typically earned £100 per week in overtime and another £100 per in commission then, their holiday pay would need to be their basic salary PLUS £100 that they would typically earn.
The 1.6 weeks that was given under UK law, could in most circumstances be paid at basic salary only.
Calculating holiday pay was often quite complicated.
What’s changing for holiday pay entitlements?
There had been hope that, with the removal of the EU legislation, the 4 weeks and 1.6 weeks would be merged under UK law and that holiday pay would then just be basic salary.
This is not happening.
The reason that we’re including this information is that some organisations had held off changing how they calculated holiday pay. They had not moved to the correct approach of including commission and overtime in holiday pay calculations.
They had done this in the hope that when EU legislation was scrapped this requirement would go away.
As it hasn’t, this is a reminder that you need to calculate holiday pay using ‘normal’ pay for the 4 weeks of annual leave per year.
2. Holiday Carry Over (from 1st January 2024)
Under EU legislation, employees were unable to carry statutory holiday (4 weeks leave) forward to a new holiday year. There were some specific exceptions to this. They related to people who were unable to take holiday due to be on sick leave or family leave.
What is changing with Holiday Carry Over?
Whilst the principle remains the same, under new legislation, employees must be allowed to carry holiday forward if:
- the employer has refused to pay a worker their paid leave entitlement;
- the employer has not given the worker a reasonable opportunity to take their leave and encouraged them to do so; or
- the employer failed to inform the worker that untaken leave will must be used before the end of the leave year to prevent it from being lost.
The key change here is that the onus is falling to employers to encourage employees to take their annual leave. Employers also need to ensure that employees understand that they must use their holiday or it will be lost.
Just for clarity, the rules allowing carry over when someone has been unable to take annual leave due to sickness absence of family leave remain unchanged.
What Actions Does an Employer Need to Take for Changes to Holiday Carry Over?
You’ll need to review your holiday policy to ensure that it is explicit about the fact that unused holiday is lost.
Then you need to establish an approach that ensures that you encourage employees to use their annual leave.
There is no guidance on what it means to “encourage employees to use their annual leave” and you’ll need to decide on an approach that works for your business.
A couple of suggestions are:
- It could be a topic that is spoken about and document during regular one-to-one meetings i.e. “Bob, you have XX days of annual leave left to take this year and I’d encourage you to ensure that you use these. As a reminder, if you do not use them then you will not be able to carry them forward and they will be lost.”
- An alternative approach could be quarterly emails to all staff reminding them of the importance of taking annual leave and then having specific conversations with people who don’t seem to be using their entitlement.
You do need to make sure that you have something documented that confirms that you met your obligations.
Need help with implementing the changes to holiday pay calculations?
3. Rolled-up Holiday Pay (from 1st April 2024)
The term “rolled up holiday pay” refers to paying an employee their holiday pay at the same time as you pay them their basic pay. What this meant is that people were paid for their holiday at the end of each pay period but then, if they actually took holiday, they received no further payment.
The EU had ruled this practice as unlawful as they felt it discouraged people from taking holiday. Even though it was ruled unlawful, it’s a practice that has remained in place, particularly for people on zero-hours contract or irregular hours as no sensible alternative was available.
What is changing with Rolled-up Holiday Pay?
From 1st April 2024, the practice of paying rolled-up holiday pay will become lawful in particular circumstances.
- The worker is classed as an irregular hours or part-year worker;
- Holiday pay is calculated at 12.07% of all pay for work done;
- The extra 12.07% is paid at the same time as pay for the work done; and
- The holiday pay is clearly shown on the payslip.
There is no requirement to pay holiday in this way but it is now a legally sound approach.
What Does an Employer Need to Do to Implement Changes to Rolled-up Holiday?
Possibly nothing depending on what you’re doing at the moment.
If you’re already paying rolled-up holiday, you can now breathe easy know that it’s a legally sound approach.
If you’d like to move to paying rolled-up holiday then you can do so but be mindful that there may be a need to consultation with employees before making the change.
4. Holiday Accrual for Irregular Hours and Part-Year Workers (from 1st April 2024)
Before reading further on this particular change, it’s worth you being familiar with what happened in relation to calculating holiday accrual for irregular hours and part year workers following the supreme court ruling in 2022 on the case of Harpur Trust v Brazel.
In summary, the approach that companies used to take when calculating how much an irregular hours or part year worker had accrued saw them apply a simple formula. They took 12.07% of hours worked as holiday accrued.
The judgement in Harpur Trust stated that, in some circumstances, this approach was unlawful. The new approach was incredibly complicated and quite impractical.
Definition of Part-Year and Irregular Hours Workers
A part-year worker can be considered as a worker who only works for part of the year and are unpaid for the remainder of the year (ignoring periods of sick leave or statutory leave) i.e. teachers with normal hours who work during term time but who are on full-year contract.
Workers on a fixed-term contract would not be covered under this definition unless there was at least a week during which they were not required to work and for which they were not paid.
Irregular Hours Worker
An irregular hours worker can be considered an irregular worker if they have a completely irregular, non-repeating working pattern.
This definition could potentially cover many individuals without normal hours such as zero-hours contract, bank staff or casual workers.
What Is Changing to Holiday Accrual Calculations?
Everyone will be pleased to hear that there is a return to the ability to use the 12.07% accrual method for calculation of holiday entitlement and this can be conducted on the last day of each pay period.
What Should an Employer Do about Holiday Accrual Calculation Changes?
If you are an employer who has irregular hours or part-year workers then you can revisit how you have been calculating their holiday and bring your approach in line with the new legislation.
You should also review your contracts and holiday policies to ensure that they are aligned to the new approach.
If you would like any help updating your contracts, policies or handbook or have any specific questions on how any of these changes impact your business, please do contact us.
Read the full list of employment law changes for 2024, with individual posts on each topic, providing all the information you need.
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