Changes to Holiday Pay

Many employers of irregular-hours workers will welcome a new change to the way holiday entitlement can be calculated and paid.

For holiday leave years that begin on or after 1 April 2024, employers can use a new method for calculating holiday entitlement accrual for those who work irregular hours, or those who work for part of the year only.

Holiday entitlement for most workers (those who are entitled to the minimum statutory holiday entitlement) will be calculated at 12.07% of actual hours worked in a ‘pay period’. A pay period simply refers to the frequency at which a worker gets paid, whether that is weekly, fortnightly or monthly.

Under the new changes, holiday entitlement will be able to be paid directly to irregular-hour or part-year workers, alongside normal pay, rather than paying the holiday pay at a time when the worker is actually taking time off on leave.

The new way of paying holiday pay, known as ‘rolled-up holiday pay’ makes sense when you consider that many irregular-hours workers will only work a few hours per week or even per month. For many irregular-hour workers, the idea of making them take holiday leave when they are only required to work a few days in a month, for example, was somewhat farcical – as employers and employees would have to agree that certain days would be classed as ‘holidays’, even though, in practice, those days were no different to any other non-working days. In fact, though previously unlawful (and still unlawful for regular-hour and full-year workers), many businesses have been rolling-up holiday pay for years for this very reason. 

How will it work?

The new way of calculating holiday pay, using the rate of 12.07% will be very simple. As an example, Mary works part-time with irregular hours. She is paid monthly. If Mary works 28 hours in January, then to work out how much holiday she has accrued in January, you would calculate 12.07% of 28 hours, which gives 3.3796. You should then round this up or down to the nearest hour – so, in January, Mary accrues 3 hours of holiday entitlement. Under these new rules, providing Mary is truly an irregular worker, then the 3 hours holiday entitlement could be paid to Mary with the rest of her January wages. It is important to note, however, that the holiday pay must be clearly marked as a separate item on the wage slip.

Why 12.07%?

Quite simple really – 12.07% is the proportion of statutory annual leave (5.6 weeks) in relation to the number of working weeks in a years (46.4 weeks). However, you should note that this rate should only be used where a worker receives the statutory minimum holiday entitlement – if they are entitled to more than this, then a different rate will need to be calculated, again using the worker’s leave entitlement as a proportion of the rest of their working weeks in a year.   

Do employers have to use the new method?

No, they can continue to calculate a worker’s holiday entitlement using the existing 52 week reference period method.

If employers do decide to employ the new method of ‘rolling-up’ holiday pay, then they should check the worker’s contract to see whether the change may amount to a ‘variation of contract’, in which case it would be wise to take legal advice before making any changes. Employers should pay the rolled-up holiday pay at the same time they are paid their wages for each ‘pay period’. Rolled up holiday pay must be paid in addition to a worker’s normal pay, which must be paid at the rate of the National Minimum Wage or above.

What if a worker is off sick during the pay period?

Where a worker is off sick or on family leave (such as maternity leave) during a pay period, then their rolled-up holiday pay must be calculated according to the average amount of the worker’s total earnings in each pay period during the previous 52 weeks. 

If you would like advice on the suitability of rolled up holiday pay for your workers, or if you are unclear on how to calculate holiday pay or have any other questions relating to this complex area of law, then please contact our Employment Law department. We can also help with ongoing HR support through our Harrowells Assist service, giving you access to expert legal advice whenever you need it. Please call us for more information.