New Government guidance on holiday pay entitlement for part year workers (eg term time workers) and those working irregular hours
You may recall that in the case of Harpur Trust v Brazel, it was decided that part year workers must have their holiday pay calculated in the same way as other permanent colleagues who work the full year, rather than pro-rated. The decision meant that those workers who work for part of the year under permanent or continuous contracts (such as term-time only workers, and some seasonal workers, zero-hour contract workers and bank staff) were put in a more favourable position than permanent workers who worked regular hours all year round when it came to calculating holiday entitlement as everyone received 5.6 weeks without discounting any weeks where no work was carried out.
On 1 January 2024, the government released guidance setting out changes to the Working Time Regulations in part to tackle the difficulties caused by this case. Here is a quick summary of some of the key changes applicable to irregular-hours workers and part-year workers:
- Calculating Statutory Holiday Entitlement: Employers can go back to using the calculation of 12.07% of actual hours worked in a pay period. The same calculation method should also be used when calculating how much leave is accrued by these workers whilst they are on maternity or family related leave or off sick. However, in these circumstances, the accrual method must also include a 52-week relevant period so employers can look back and work out an average of hours worked across that period to calculate what period of leave should be deemed to have accrued during the period of absence.
- Rolled-Up Holiday Pay: Rolled-up holiday pay allows employers to include an additional amount with every payslip to cover a worker’s holiday pay, as opposed to paying holiday pay when a worker takes annual leave. Employers using rolled-up holiday pay should calculate it based on a worker’s total ‘normal’ pay in a pay period using the 12.07% accrual method. A pay period is the frequency at which workers get paid, that is weekly, fortnightly, monthly, etc. This is a change from previously where rolled up holiday pay could not be used.
- Calculating Holiday Pay: Employers can continue to use the existing 52-week reference period to calculate holiday pay. However, they can choose to use rolled up holiday pay instead for leave years beginning on or after 1 April 2024.
- Normal Pay: From 1 January 2024, normal pay must include payments, including commission payments, 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; and other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date.
You can read the guidance in full here: https://www.gov.uk/government/publications/simplifying-holiday-entitlement-and-holiday-pay-calculations/holiday-pay-and-entitlement-reforms-from-1-january-2024
If you have any queries regarding how to calculate your workforce’s holiday entitlement and pay, would like to implement rolled up holiday pay, or to check that your employment contracts and policies are up to date with current employment law, please contact a member of the team.