Holiday pay and arrangements – new rules

Some significant changes come into force this year and now is a good time for employers to ask themselves about the potential impact on their workforce.

Employers need to be careful because different rules come into effect at different times and some relate to different periods of holiday (the original 20 days given to full-timers in 1998 (the “EU 20 days”), and the additional 8 days granted by the UK government in 2007 (“the UK 8 days”)). On 1 January, the Government published guidance on these changes, including worked examples.

Statutory carry-over rules from 1 January 2024:

• Carry-over rules designed to reflect case-law are now confirmed in statutory regulations
  • Workers can carry forward into a subsequent leave year holiday that they were unable to take due to a period of statutory leave (maternity and other family-related leave). The applies to the EU 20 days and the UK 8 days.
  • Workers can carry forward holiday that they have been unable to take because of sick leave, provided that it is taken within 18 months of the end of the relevant leave year. This applies only to the EU 20 days.
  • The special rules that enabled workers to carry over leave that they were unable to take due to the covid pandemic cease to have effect on 1 January 2024, albeit with a period of grace allowing workers with such leave still to take to do so by 31 March 2024.
  • Workers can carry forward untaken EU 20 days holiday where the employer fails to:
    • Recognise a worker’s entitlement to annual leave or paid annual leave; or
    • Give the worker a reasonable opportunity to take the leave; or
    • Inform the worker that any leave not taken by the end of the leave year will be lost.

• We recommend that employers should in particular:
  • Check that policies comply with the rules on carry-over
  • Review what systems are in place to inform workers that any untaken leave will be lost

New rules for irregular hours and part-year workers for leave years commencing after 1 April 2024

• New rules for irregular hours or part-year workers.
  • New rules will apply to the holiday entitlement (the EU 20 days and the UK 8 days) of these workers, such that holiday will be calculated in terms of hours, rather than weeks and will accrue on the last day of each pay period at the rate of 12.07% of the actual hours worked in that period. Employers can choose to process holiday payments by either:
    • Paying when holiday is taken at the rate of the average weekly pay over the previous 52 weeks; or
    • Paying rolled-up holiday pay at a rate of 12.07%
• We recommend that employers should:
  • Identify if any of their workers come within the new definitions of irregular hours or part-year workers. The definitions are important as if employers consider a worker to come within this category and pay rolled-up holiday pay, but the employer’s interpretation is wrong, this could lead to significant liability.
  • Identify whether their current systems comply with the new rules that will apply for leave years commencing after 1 April 2024
  • If systems require changing (or employers wish to change, for example, to move to rolled-up holiday pay), consider whether such changes are contractual changes and require formal (and in some cases, collective) consultation.

Statutory rules on holiday pay calculations, reflecting case law – 1 January 2024

• Holiday pay must include all aspects of “normal remuneration”. This principle has been established by case law, but will now be enshrined in regulations, The new statutory provisions apply to the EU 20 days holiday from 1 January 2024 and all holiday for irregular hours and part-year workers for leave years commencing after 1 April 2024, clarifying that the calculation of holiday pay should include:

• Payments, including commission payments, which are intrinsically linked to performance of tasks which the worker is obliged to carry out;
• Payments for professional or personal status relating to length of service, seniority or professional qualifications;
• Payments such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date

• We recommend that employers should:

• Review their holiday pay calculations in light of the statutory provisions (which are intended to reflect the case-law in this area)

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If you have any queries you would like to discuss regarding holiday pay and arrangements, please contact Rena Magdani or Matt McBride.

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