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Holiday Pay - The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2024

The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, came into force on the 1st January 2024. The Regulations amend the Working Time Regulations 1998 to preserve various entitlements under EU Law. They also set out a new system of holiday accrual for newly defined "irregular hours" and "part-year workers", brought in to address the perceived difficulties caused by the Supreme Court's decision in the case of Harpur Trust v Brazel.

Accompanying the Regulations, the Government have issued some guidance which provides illustrations and examples specific to holiday pay and entitlement scenarios. The link to the guidance can be found here.

Some particular points worth highlighting are:

Irregular hours and part-year workers

The guidance gives examples as to who would fall within or outside these definitions:

Irregular hours workers: A worker is an irregular hours worker, in relation to a leave year, if the number of paid hours that they 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

The examples demonstrate that a truly zero hours (casual) worker would count as an irregular hours worker whereas a worker on a rotating (but fixed) two-week shift pattern, for which the number of hours alternates, would not.

Part year workers: A worker is a part-year worker, in relation to a leave year, if, under the terms of their contract, they are required to work only part of that year and there are periods within that year (during the term of the contract) of at least a week which they are not required to work and for which they are not paid. This includes part-year workers who may have fixed hours, for example, teaching assistants who only work during term time, and who are paid only when working.

Whether an individual fits within the definition of an irregular hours or part year worker will be a matter of fact for each individual situation and we would suggest that an audit is undertaken to consider if any members of staff would meet this definition.

Holiday entitlement for irregular hours and part year workers

For those irregular hours and part year workers whose leave year begins on or after the 1st April 2024, holiday entitlement will be calculated on the last day of each pay period at the rate of 12.07% of actual hours worked in a pay period. There is a specific method for calculating holiday entitlement for this class of workers when they take a period of family leave or sick leave, and this is set out in the guidance.

Starting to use rolled-up holiday pay

For irregular hours and part-year workers, for holiday years starting on or after 1 April 2024, employers can choose to use rolled-up holiday pay. In terms of practicalities, the guidance states that:

'If employers intend to start using rolled-up holiday pay, they should check their workers' contract in case this amounts to a variation of contract. Employers should tell their workers if they intend to start using rolled-up holiday pay and for this payment to be clearly marked as a separate item on each payslip. The holiday pay should be paid at the same time as the worker is paid for the work done in each pay period. Employers of agency workers must include this information in the agency worker's Key Information Document.'

The guidance also notes that if the employer chooses to use rolled-up holiday pay then the entire amount of leave for irregular hours and part-year workers will be paid at the 'normal' rate of pay (see below). An employer may decide not to use rolled up holiday for this class of workers and may instead use a 52-week reference period to calculate holiday pay, which is also permitted under the Regulations.

Holiday pay rates and order of leave

The guidance explains that in respect of full-year workers who are legally entitled to 5.6 weeks of paid statutory holiday entitlement per year:

the first four weeks of this entitlement must be paid at a worker's 'normal' rate of pay

the remaining 1.6 weeks' entitlement can be paid at 'basic' rate of pay

The guidance notes that:

'The regulations do not state which entitlement should be used first. Many employers choose not to distinguish between the 2 pots of leave, and to pay the entire 5.6 weeks at the 'normal' rate of pay. If an employer wishes to pay different holiday rates for different periods of leave, then they should consider explaining this clearly and consistently to the worker, for example in the worker's contract or staff handbook.'

From the 1st January 2024, the following payment must be included in the 4 weeks of normal holiday pay:

Payment, including enhancements, intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out.

Payments relating to professional or personal status relating to length of service, seniority or professional qualifications.

Other payment, such as overtime payment, which have been regularly paid to a worker in the 52 weeks preceding the calculation date.

Carryover of leave

The Regulations provide for certain circumstances where workers have the right to carry over annual leave into the next holiday year. The initial point to be aware of relates to the more proactive burden now on employers to recognise a worker's right to annual leave, give a worker a reasonable opportunity to take leave or encourage them to do so and remind staff to take their holiday in a holiday year or they will lose it. If employers fail to do this, the Government guidance states that "the employee will be entitled to carry forward into the next year the leave that they should have been entitled to take."

Any worker who is unable to take some or all of their statutory holiday entitlement as a result of taking maternity leave or other family related leave can carry forward up to 28 days of their untaken leave into the following year.

In addition, any regular hours worker who is not able to take some or all of their statutory holiday due to being off sick will be entitled to carry forward up to 20 days into the following leave year provided it is taken by the end of the period of 18 months. An irregular hours or part year worker who is off sick and is unable to take their holiday will be entitled to carry over up to 28 days of leave. The worker would need to use that leave they have carried over within 18 months starting from the end of the leave year in which it was accrued. Note that from the 1st January 2024 workers can no longer accrue COVID 19 carry over.

Holiday pay and entitlement is a notoriously difficult area to navigate. The new reforms are as yet untested, and it is therefore important to ensure that specific advice is obtained when dealing with holiday queries.

For more information contact Annabel Kelly in our Housing & Regeneration department via email or phone on 01254222305. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

Learn more about our Housing & Regeneration department here

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