Holiday pay and entitlement update

Following the consultations earlier this year (2023) on calculating holiday entitlement for part-year and irregular hours workers, the Department for Business and Trade (DBT) have now released their responses, followed very quickly by draft regulations which state a start date of 1st January 2024. The holiday pay specific regulations will affect any leave years starting on or after 1st April 2024.

These regulations are subject to government approval and subject to change and will apply to England, Scotland and Wales.

The proposed changes affect part-year and irregular hours workers only. The draft regulations define these two types of worker as:

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

https://assets.publishing.service.gov.uk/media/654b64c4e2e16a000d42ab6c/retained_eu_law_statutory_instrument_the_employment_rights_regulations_2023.pdf

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.

https://assets.publishing.service.gov.uk/media/654b64c4e2e16a000d42ab6c/retained_eu_law_statutory_instrument_the_employment_rights_regulations_2023.pdf

Full time or full year worker

There is no change here – each worker will receive 5.6 weeks annual leave. If earnings change due to regular overtime, bonus or commission payments, a 52 week average will be calculated and will be the rate paid when holiday is taken. Workers whose earnings never change, for example a salaried worker, will receive their basic rate of pay when holiday is taken.

Irregular hours or part year worker – Accruing entitlement method

Workers will accrue 12.07% of hours worked in each pay period, with the 52 week average being paid when holiday is taken.

For sick or statutory leave, the average number of hours worked in the prior 52 weeks (or all weeks if less than 52 weeks is available) is calculated, discounting any weeks where sick or statutory leave was taken, but including all other weeks, even if no work was completed in that week. Then take 12.07% of the hours calculated. Finally, multiply the number of hours by the number of weeks in the pay period relating to sickness or statutory leave.

Irregular hours or part year worker – Rolled-up holiday pay method

Workers will receive a 12.07% uplift of their eligible earnings each pay period.

For sick or statutory leave, you’ll take an average of the holiday pay element paid to the worker in the previous 52 weeks (or all weeks if less than 52 weeks is available), then multiply by the number of weeks in the pay period relating to sickness or statutory leave.

When further information is available we’ll provide an updated blog with a link here.

Any clients with questions regarding the potential implementation of this can contact us now to discuss their individual situation.