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07 February 2024

Holiday pay and entitlement reforms in 2024

The Government issued a response to their consultation on Retained EU Employment Law, in late 2023.

As part of its response, the Government has taken steps to try and resolve some of the problems highlighted by the recent case of Harpur Trust v Brazel 2022. The decision by the Supreme Court created certain oddities, such as, a part-year employee’s holiday pay may represent a higher proportion of their annual pay than that of a full-time employee.

Rolled-up holiday pay
The Government will attempt to solve these issues by introducing ‘rolled-up’ holiday pay (RHP) and changing how annual leave entitlement accrues for part-year and irregular hours workers. These changes will become law on 1 January 2024, but take effect on 1 April 2024.

RHP refers to the practice of paying an employee’s holiday pay at the same time as basic pay and will allow irregular hours or part-year workers to be paid an additional enhancement to their basic pay instead of being paid when they take annual leave. This will apply to holiday years starting on or after 1 April 2024, and will be permitted so long as:

  1. Holiday pay is calculated at 12.07% of all pay for work done (12.07% being the statutory minimum holiday entitlement in a year – 5.6 weeks – expressed as a percentage);
  2. The additional enhancement must be paid at 12.07% of the hours worked, at the same time as an individual is usually paid and itemised separately on the payslip;
  3. The worker is a part-year worker or works irregular hours. Part-year workers are required to work only part of the year, with a period of at least a week in which they are not required to work and which they are not paid for, including term-time workers. Irregular hour workers include those where the number of paid hours worked in each pay period is variable.

For workers with normal working hours, the calculation for holiday pay remains the same and should be calculated over a 52-week period. Whether this will include discretionary bonuses remains unclear.

Annual leave entitlement
For holiday years that start on/after 1 April 2024, annual leave entitlement will now also accrue at 12.07% of hours worked in a pay period for irregular hours workers and part-year workers. This is subject to a maximum of 28 days per year. This means they will build up holiday entitlement as they work, rather than getting a whole years’ holiday entitlement up front at the beginning of the year. Annual leave entitlement will, from 1 April 2024, therefore be a more accurate reflection of the amount of hours actually worked and serve to correct some of the inconsistencies that resulted from the Harpur Trust v Brazel ruling.

Carry over of annual leave entitlement
As of the 1 January 2024 there is now a positive duty for employers to (i) actively tell and encourage workers to use their annual leave entitlement, and (ii) give workers a reasonable opportunity to take such leave. It is thought that current wording in employment contracts will not be enough to satisfy this requirement and employers should therefore consider making internal announcements to deliver this message and keeping a record of the same.

Important takeaway points
Employers should be aware that these new changes for irregular and part-year workers only apply to holiday years starting on or after 1 April 2024. For those that adopt the calendar year as its holiday year may have to consider actively moving their holiday year earlier, or implementing these changes in the next available holiday year.

Government guidance has also been published to assist employers and focuses on part-year and irregular hours workers, and can be found here. The guidance provides various examples of pay calculations in respect of holiday accrual and annual leave entitlement.

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Naomi Latham
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