Holiday pay rules are changing - are you ready?
The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 were passed in late December and come into force in phases. Many changes took effect in January but there are significant changes affecting people working part-year or irregular hours that come into force on 1st April 2024. There are also changes regarding the carrying over of leave and what should be included in the holiday pay calculation.
To help employers manage the changes the Department for Business and Trade have published guidance, which you can view here. However, industry specialists have expressed concerns that the guidance contains serious gaps and does not address many of the difficulties raised by the application of the new rules. Getting advice or training from a payroll expert is going to be crucial.
UK Training’s payroll expert, Jo Marshall, will be explaining the changes in detail during her next presentation of our half-day training course Holiday Leave and Pay, which will be delivered live online on the afternoon of 12th March.
Who is an irregular hours worker?
The new guidance defines someone as an irregular hours worker 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 given include zero hours and casual workers but not those with a fixed but rotating shift pattern.
Who is a part-year worker?
A part-year worker is defined as someone who:
“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”
Examples include seasonal workers who only get paid during some months of the year because there are periods (of at least a week) when they are not paid. How this affects people who receive ‘annualised’ salaries, term-time workers for example, remains a point for clarification.
What is changing for irregular and part-year workers?
The changes will apply to holiday entitlement of affected workers for their first holiday year beginning on or after 1st April 2024. Entitlement must then be calculated as 12.07% of hours actually worked in a pay period, capped at 28 days. Leave continues to accrue during periods of sick or statutory leave.
Can leave be carried over?
Any workers who are unable to take their annual leave because they are already on maternity or other family-related leave will be able to carry over the full entitlement to the next leave year. Those who lose out because they are on sick leave can carry over 4 weeks.
Workers can also carry over holiday leave if their employer refuses to give them paid holidays to which they are entitled. This also applies where the employer does not give reasonable opportunity for the leave to be taken or does not inform the worker that the leave will be lost if not taken.
How is holiday pay calculated?
The legal principle that underpins holiday pay rights is that workers should not lose out by taking annual leave. The new rules clarify some aspects of the pay calculation for the first time. This includes payments that are additional to the basic pay such as performance-related commission, regular overtime or payments related to status or service.
The Regulations do allow for the statutory (4 weeks) leave to be paid at a rate including all the above, while the additional 1.6 weeks could rely on a basic pay calculation. However, as the Government guidance makes clear, in practice this tends not to happen.
How can you be sure you are complying with the new rules?
The rules regarding holiday pay are complex and can be subject to nuance and interpretation. Even the Government’s own guidance is unclear on some key issues so it is almost impossible for employers to be certain they are doing things right without some outside help and support.
Payroll agents, professionals and software developers will do their best to ensure that your payroll operation is adhering to the rules but you should also keep yourself informed and fully trained on the latest changes. Ultimately, it is the employer who bears the legal responsibility for ensuring that workers are correctly paid for the holiday leave to which they are lawfully entitled.
Written by Paul Murphy
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The best way to keep abreast of any changes in the world of Payroll is to attend one of our very popular payroll courses. UK Training is nearly always first at producing training courses on new and emerging legislation so attending our Holiday Leave and Pay course will ensure that you are well briefed on the changes taking place this year. Furthermore, our Payroll Update course will outline details of important developments in case law and forthcoming changes in the law, such as the end of the P11D.
http://www.uktraining.eu/news-article/holiday-pay-rules-are-changing-are-you-ready/171