WITH the pace of legal divergence from EU law increasing at the turn of the year, ministers have tried to simplify holiday pay entitlements to fit a post-Brexit Britain. Clive Day, partner at the employment team for legal and professional services business Knights, discusses the key immediate preparations for businesses ahead of impending changes to holiday entitlement and pay this month.
Will the calculation of holiday pay change?
Yes, for some workers. For holiday years starting after 1 April, there will be two parallel regimes in the UK for how holiday is earned and paid.
The original regime (derived largely from EU law) will continue to apply to employees who work regular hours throughout their holiday year. A new ‘simplified’ holiday pay regime is however, being introduced alongside it. The regime, introduced as a new Regulation 15B of the Working Time Regulations 1998, is intended to simplify matters for casual and irregular labour.
This push for simplification has a long back-story. Historically EU concepts and requirements on holiday pay were more difficult to apply for casual or intermittent work. Problems came from a requirement to calculate holiday in ‘weeks’ and the need to avoid ‘rolled up’ holiday pay amongst other limitations.
The area was further complicated by a Supreme Court decision in 2022, which confirmed that part-year workers should receive a disproportionate amount of leave relative to their work.
How will the new regime affect ‘irregular hours’ or ‘part-year’ workers?
Anticipated to impact more than five million employees in the UK, the key changes aim to simplify holiday pay and entitlement for two new classes of worker, ‘irregular hours’ and ‘part-year’ workers. For these workers, the law will now allow holiday pay to be accrued in hours worked in each pay period, at a set rate of 12.07%. At the employer’s option, such accrual can also be paid as ‘rolled up’ holiday pay.
What actions should employers take?
When it comes to casual or part-year workers, employers need to pay extra attention to ensure they are correctly calculating holiday pay, given the dual regime that will apply in future.
HR teams must make efforts to review existing employment contracts and holiday policies and analyse how this may affect less regular labour, such as zero hours workers, term-time workers and shift workers with varying hours each week or month.
With rolled-up holiday pay permitted, HR should consider when to use that approach or calculate holiday pay based on average work over what is usually a 52-week average period.
HR staff also have a heightened responsibility to give reasonable timely reminders that workers should take their holiday before the end of year, warning of the risk of losing it at the end of the holiday year where they have not taken it.