Holiday pay has been a confusing and changing landscape for many years now, the result of a number of different employment tribunal cases and now in April 2024 we have further reforms aimed at simplifying holiday entitlement and holiday pay calculations in the Working Time Regulations.
Statutory Minimum Holiday
All workers have a statutory right to 5.6 weeks holiday each year. When a worker is full time and paid a regular salary this is straight-forward. However, many workers work part time or irregular hours and have payments in addition to salary (e.g. overtime, commission, bonuses).
Those who work 5 days a week, 5.6 weeks holiday is 28 days, many smaller employers give 20 day holiday plus the 8 bank and public holidays to meet the minimum requirement whilst others, especially larger employers will often give more than the 20 days in addition to bank/public holidays.
Part time workers will have their entitlement calculated by multiplying their normal working week by 5.6.
Calculating Holiday Pay
From 1st January 2024, the payments that must be included when calculating “normal” rate of pay for holiday purposes are defined as:
- Payments, including commission payments, intrinsically linked to the performance of tasks which as worker is contractually obliged to carry out
- Payments relating to professional or personal status relating to length of service, seniority or professional qualifications
- Other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date
Put simply, any payment associated with being a worker that they would normally earn by being at work.
For the purposes of holiday pay, there are two pots of statutory leave, four weeks of entitlement which must be paid at “normal” pay as defined above and 1.6 weeks that can be paid at basic pay. In reality most employers pay all the leave at “normal” pay. If you are going to pay the 1.6 weeks at the lower amount this should be clearly communicated to employees.
Workers who are irregular hours or are part year can have their pay calculated either using the rolled up method described below or using the 52 week reference period method, which is to calculate average pay over the previous 52 weeks in which work is carried out.
Rolled Up Holiday Pay - Irregular Hour Worker and Part Year Workers
Definitions have been introduced for irregular hour workers and part year workers and are as follows:
- Irregular hour worker - this applies where the number of paid hours that the individual will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable. This would include casual and zero hour contracts.
- Part year worker - this applies when an individual, under the terms of their contract, is required to work only part of the year and there are periods within the year of at least a week where they are not required to work and are not being paid. This includes those on term time only contracts where the hours are fixed during term time and where payment is only made when the individual is working or those doing seasonal work.
In leave years beginning on or after 1 April 2024, there is a new accrual method for irregular hour workers and part-year workers in that holiday can be accrued at 12.07% of actual hours worked. This is the equivalent of the statutory minimum of 5.6 weeks, where contractual holiday entitlement is higher than 5.6 weeks a different percentage will need to be used.
This method of accrual is referred to as rolled up holiday pay and can be paid as an additional amount in each payslip to cover holiday pay rather than paying when the worker is on leave.
Holiday entitlement is about providing breaks for work. There should be no detriment for taking those breaks and individuals should be paid at the time the holiday is taken. That said, a recent judgement did say that if the pay is transparent and comprehensible there are occasions where rolled up holiday could be used and this change to the Working Time Regulations reinforces that this method is acceptable.
Holiday for Term Time Only Workers
Compressed hours are fixed within the contract, even where hours one week are different to the next therefore they do not count as irregular hours workers as used in the definition above.
Holiday entitlement for compressed hours workers (e.g. those doing a 9 day fortnight with 9 longer days to make the same full time hours) will need to be worked out in hours if the length of their days varies and days if all their day lengths are the same.
The formula for calculating their holiday requires starting with their average weekly hours, so if they work 40 hours in week 1 and 35 hours in week 2 their average weekly hours are 37.5. Their average hours are then multiplied by 5.6 for their statutory minimum entitlement, making their entitlement for the full year 210 hours. You’ll need to deduct any bank/public holidays they’re required to take from this total.
The same method can be used for anyone on a multiple week pattern.
Carry Over of Statutory Holiday
With effect from 1 January 2024 the following applies to carry over of statutory holiday:
- a maximum of 8 days can be carried over into the next holiday year with the agreement of the employer.
- if holiday cannot be taken due to maternity or other family related leave then the full statutory entitlement can be carried over in the following year.
- if a regular hours worker is unable to take their holiday due to being off sick they can carry over 20 days (4 weeks) of untaken holiday, provided it is used within 18 months of the end of the leave year (this is 28 days (5.6 weeks) for an irregular hours worker or part year worker)
- holiday can also be carried forward if the employer has refused to pay holiday pay, has not given the worker reasonable opportunity to take leave or encouraged them not to take it or if the employer failed to inform the worker that untaken leave will be lost.
Where holiday entitlement is above the statutory minimum of 5.6 weeks employers can agree their own rules on carry over of holiday entitlement.
The past 10 years have seen a changing landscape for holiday pay, unhelpfully for employers this has been drip fed through a number of different cases and there is no guarantee this is the end of the changes. This legislation reform in 2024 does make things simpler and clearer for employers, particularly when dealing with irregular hours workers.
If you’re looking to change the way holiday is paid, this may be a change to contract and therefore advice should be sought before making this change.
We can help, so book a Free Advice Call .
Article last updated: 9 February 2024
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