How is holiday pay changing in 2024?

As of 1 January 2024, new regulations on holiday pay and entitlement were introduced in the UK. These regulations cover a number of areas and introduce important changes that employers should be aware of. With so much to keep up with, we’ve put together this article to help you stay informed. So, let’s take a closer look at what’s changing.

 

Holiday pay changes 2024

Irregular hour worker and part-year worker definition

The new regulations create new methods for calculating the accrual of holiday entitlement and for holiday pay, but only for “irregular hour workers” and “part-year workers”. In the regulations, the definitions of irregular hour workers and part-year workers are clarified as follows:

• Irregular hours worker: A worker is an irregular hours worker if the number of hours they 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 pay period is how frequently the worker is paid, such as monthly or weekly. So as an example, this could be someone on a zero-hours contract where the number of hours worked fluctuates each week.
• Part-year worker: A part-year worker is someone who, under the terms of their contract, is required to work only part of the holiday year and there are periods within that year (during the term of the contract) of at least a week where they’re not required to work, and for which they’re not paid. An example of this is a term-time worker, who only works when schools are in.

Holiday entitlement for irregular hours and part-year workers

For holiday years beginning on or after 1 April 2024, holiday entitlement will accrue for these workers on the last day of each pay period at the rate of 12.07% of the number of hours they worked during that pay period.

Leave will continue to accrue when they are on sick leave or statutory family leave (such as maternity leave), and this will be based on 12.07% of the average hours worked over the previous 52 weeks.

Rolled up holiday pay

Rolled up holiday pay 2024 – another big change coming to holiday rules for irregular hours and part-year workers is the introduction of a new right for employers to pay rolled-up holiday pay.

For part year or irregular hours workers with holiday years starting from 1 April 2024, employers will have the option to pay rolled up holiday pay. This is when an additional amount is added to the worker’s pay which represents the holiday pay they have earned in that pay period. This is calculated by paying an additional 12.07% of pay earned in that period.

This must be paid at the same time as they are paid for the work done and must be itemised separately and clearly on their payslip. Workers who receive rolled up holiday pay should continue to receive it when they are on sick leave or statutory leave and the regulations set out how this should be calculated, basing the 12.07% entitlement on an average of the worker’s wages over the previous 52 weeks.

A quick note to keep in mind…

Workers receiving rolled-up holiday pay won’t get a payment when they take holiday, which could deter some people from taking their annual leave. So it’s worth remembering, that as an employer, you’re responsible for encouraging employees to take their annual leave and you have a legal obligation to protect the Health & Safety of your workers and rest is a key part of that.

Carryover of leave

The usual rule on any statutory holidays left over at the end of the holiday year is that they cannot be carried forward to the next year and are lost. However, various pieces of case law at the European level had established exceptions to this in certain circumstances. It was unclear what the status of those exceptions would be following the UK’s departure from the EU, but the new regulations have confirmed the previous rules as part of UK legislation for the first time.

EU law had set a minimum entitlement of 4 weeks – i.e. 20 days for those working 5 days a week. UK law set an entitlement to an additional 1.6 weeks – i.e. 8 days, for those working 5 days a week. The new regulations have continued to treat these two entitlements slightly differently.

If a worker has been unable to take their full holiday entitlement because they have been on statutory family-related leave, e.g. maternity leave or shared parental leave, they will be entitled to carry over the unused amount, up to the full 5.6 weeks, to be taken in the next holiday year.

If a worker has been unable to take their full holiday entitlement because they have been off sick long term, they will be entitled to carry over up to 4 weeks of unused holiday, which must then be taken within 18 months of the end of the holiday in which it was accrued.

Finally, if an employer has prevented or failed to allow a worker to take and/or be paid for their full holiday entitlement, or has failed to inform them that any unused holiday will be lost at the end of the holiday year, the unused amount, up to 4 weeks, can be carried over.

Holiday pay calculations

As discussed above, the new regulations have retained the pre-existing separation of holiday entitlement into 4 weeks and 1.6 weeks. Over recent years several EU cases have confirmed what payments need to be included in ‘normal’ pay for holiday pay purposes, but these rulings only applied to the 4 weeks derived from EU law, whereas the remaining 1.6 weeks could be paid at ‘basic’ pay only.

The new regulations have now confirmed those rules will continue to apply. Therefore, 4 weeks of holiday pay should include average commission, bonuses, regular overtime, and any other payments “intrinsically linked to performance of the role”; whereas the remaining 1.6 weeks of holiday pay can be paid on the basis of basic salary only (reimbursement of expenses are not included in either case).

The regulations do not define how the difference between the 4 weeks and 1.6 weeks should be decided, e.g. the first 4 weeks taken, or bank holidays comprising the 1.6 weeks, so many employers may decide it is clearer and administratively simpler (albeit more expensive) to apply the more generous entitlement to all holidays taken.

 

Partner with Citation for holiday pay guidance

We know understanding these holiday pay changes 2024 can be overwhelming, but you don’t have to manage them alone. At Citation, we’re committed to supporting your business with employment law changes and beyond.

Gain access to our comprehensive HR & Employment Law services, offering a 24/7 advice line with HR consultants ready to help. Our HR Software, Atlas, streamlines compliance tasks, while our experts create documents for you and provide essential guidance tailored to your industry. Plus, we’ll help you prioritise employee wellbeing to help you nurture a healthy and productive workplace.

Contact us today to learn more about these new holiday pay rules 2024 and how Citation can support your business with comprehensive holiday pay guidance and a smooth transition into the new regulations.