When it comes to New Year’s Day 2024, the payroll department can expect a lie-in, even if a short one, as changes to holiday pay coming into effect that day have been scaled back. The changes were expected following the UK’s exit from the European Union, and while much of EU employment law has been retained, the Government decided to reform the calculation of holiday entitlement and pay, to simplify calculations.
They were reviewing the combined entitlement most people receive of 5.6 weeks of holiday a year, or the equivalent pro rata, which is made up of four weeks of EU regulated leave and 1.6 weeks of domestic regulated leave.
The two entitlements have different rules for calculating pay, with the EU regulated leave including bonus or overtime payments, and generally cannot be carried over into a new holiday year. The domestic provision requires only basic rate payment for the 1.6 weeks of holiday pay, and this holiday can be carried over with written agreement.
Plans on the table included introducing a single annual leave entitlement, but following consultation the Government has announced it will maintain two distinct pots, so that workers continue to receive four weeks at their regular overall pay and 1.6 weeks at basic pay.
There is clarification of the detail for what counts as regular pay, which will be set out in legislation to include any overtime regularly paid in the previous 52 weeks; any extra payments for service, seniority or professional qualifications; and any linked to performance of contractual tasks.
There will, however, be changes for those working part-year or irregular hours. A consultation carried out alongside for these workers has decided on an accrual method, so these workers will accrue holiday at 12.07% of hours worked over the previous pay period.
This is a turn-round from a Supreme Court decision in 2022, which ruled in The Harper Trust v Brazel that the percentage calculation for holiday pay did not comply with the Working Times Regulations 1998.
Consultation by the Government also considered the use of rolled-up holiday pay, by which workers receive their holiday pay every working week through an extra percentage on top of their earned pay, instead of when they take time out for holiday. This was previously unlawful, but now will be allowed for part year and irregular hours workers, and where this method is used, it must be based on a worker’s total earnings in a pay period.
Legislation will also enable leave to be carried over when maternity or family-related leave means a worker cannot take their entitlement during the holiday year.
“Knowing things stay broadly as they are, with some extra clarification on what counts as normal pay will be a positive for most employers, as will the decision for how to calculate holiday pay for those on irregular hours.
“It was inevitable that there would be winners and losers, and those who only work part of the year may find themselves less well off with this outcome explained Jon Dunkley, employment lawyer at Wollens,
Jon Dunkley is a partner and Head of the Employment team at Wollens.
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