Important changes to UK holiday pay
New laws came into effect on 1 January 2024 which have implications for holiday pay for UK employees who experience variations in pay due to factors such as commission or overtime. Employers that fail to adhere to the new law could face claims going back two years.
Back in November, our blog on zero-hours contract holiday pay explained a recent ruling by the UK Supreme Court and how holiday pay should be calculated for part-year workers and those on a zero-hours contract. The UK Government has now introduced two new definitions for part-year and irregular hours workers.
In summary, a part-year worker is someone who (under the terms of their contract) is required to work only part of the year. There will be periods within the year of at least a week which they are not required to work and are subsequently not paid.
An irregular hours worker is someone whose paid hours are wholly or mostly variable during the term of their contract.
If you are an employer with workers who fall into either of these categories, then you will need to use the new calculation method for statutory holiday entitlement. This will affect the holiday entitlement for these workers for leave beginning on, or after, 1 April 2024. From this time, holiday entitlement will need to be calculated in hours and not weeks.
UK Holiday Entitlement – The Percentage Method
For irregular hours and part-year workers holiday entitlement will accrue at 12.07% of the hours worked in a pay period. As a reminder, the figure of 12.07% is derived by using the following calculation.
52 weeks (number of weeks in a year) minus 5.6 weeks (the amount of paid statutory holiday entitlement) = 46.4 weeks. 5.6 weeks is 12.07% of 46.4 weeks.
Rolled-up UK holiday pay
An employer can choose to use rolled-up holiday pay. In these cases, the entire amount of leave for irregular and part-year workers is paid at the ‘normal’ rate. Rolled-up holiday pay allows an employer to include an additional amount in each payslip to cover holiday pay. This saves the employer from having to pay a worker when they are on annual leave.
Changes to UK holiday pay – ‘Normal’ rate of pay
The Government has laid down the components which must now be included when calculating a ‘normal’ rate of pay. The following payments can be contributing factors in the 4 weeks of normal holiday pay.
- Payments linked to performance (including commission)
- Payments related to length of service, seniority and professional status
- Overtime payments
- Other payments which have been made regularly to a worker in the past 52 weeks
Irregular workers or part-year workers should have all their statutory holiday entitlement paid at a rate based on their total pay.
The remaining 1.6 weeks of entitlement can be paid at a lower rate based on the worker’s basic remuneration.
While the new law does not throw up any major surprises, this is the first time that it has been set out in legislation.
It is always worth regularly reviewing staff contracts and these changes to holiday pay serve as an important reminder. Blossom HR can provide expert advice on employment contracts. If you require further assistance, please get in touch to arrange a complimentary 30 minute consultation.