Changes to holiday entitlement and pay in 2024: What does HR need to know?
Author: Susie Munro
A number of changes to holiday entitlement and pay are due to come in next year, especially for workers with irregular hours and part-year workers. We look at what HR needs to know to be ready for the developments.
The measures are included in the draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, which are expected to come into effect on 1 January 2024.
The changes relating to irregular hours and part-year workers will apply to holiday years beginning on or after 1 April 2024. This means that organisations with holiday years running from January will have some extra time to prepare.
1. Holiday entitlement for irregular hours workers and part-year workers will accrue at 12.07% of hours
The Supreme Court's 2022 decision in Harpur Trust v Brazel meant that employers had to change the way they had been calculating holiday entitlement for some term-time workers, zero-hours workers and other workers with irregular hours. The Court held that the 5.6-week holiday entitlement could not be pro rated for part-year workers. The Government has decided to legislate in response to this decision, to introduce a new holiday entitlement for irregular hours and part-year workers.
For holiday years beginning on or after 1 April 2024, holiday entitlement will be calculated using an accrual method throughout the holiday year.
Entitlement will accrue at 12.07% of hours worked in a pay period, rounded to the nearest hour. For example, if a monthly paid worker works 100 hours in a month, they will have accrued 12 hours of annual leave.
Workers will not be able to accrue more than 28 days' statutory annual leave.
The draft Regulations also set out an accrual method for calculating holiday entitlement during family-related leave or sick leave for irregular hours workers and part-year workers. This will be based on their average hours over a 52-week period.
Employers that designate periods when these workers must take their annual leave can continue to do so. It is open to employers to allow workers to take leave before it has been accrued.
How do the Regulations define irregular hours workers and part-year workers?
- Someone is an irregular hours worker if the number of paid hours that they will work in each pay period in a particular leave year is, under the terms of their contract, wholly or mostly variable. This will include zero-hours workers, for example.
- Someone is a part-year worker if they are contractually required to work only part of a particular holiday year and there are periods within that year (during the term of the contract) of at least a week that they are not required to work and for which they are not paid. This will include some term-time workers, for example.
2. Rolled-up holiday pay will be allowed for irregular hours workers and part-year workers
Rolled-up holiday means paying an additional amount for holiday pay along with basic pay throughout the employment relationship, instead of making a payment at the time holiday is taken.
Rolled-up holiday pay is unlawful under EU law (although some employers have continued to roll up holiday pay for administrative ease).
The amendment under the new Regulations applies only for irregular hours workers and part-year workers. It will not be compulsory for employers to implement rolled-up holiday pay, but they can choose to do so.
If an employer does choose to use rolled-up holiday pay, it must calculate it at 12.07% of the worker's earnings during the pay period. It must be paid at the same time as pay for work done (not when the leave is taken) and the worker's pay statement must itemise how much holiday pay they have been paid for the period.
The change applies for holiday years beginning on or after 1 April 2024.
3. Workers on family-related leave must be allowed to carry over holiday
The Regulations specify that workers must be allowed to carry holiday forward into the next holiday year if they have not taken it because they were on maternity leave, adoption leave, shared parental leave, ordinary parental leave, paternity leave or parental bereavement leave.
Most employers will already have been doing this, as case law had established that carry-over was required in these circumstances. With these amendments, the Working Time Regulations 1998 (SI 1998/1833) will catch up with case law and employer practice.
This requirement applies to the whole 5.6 weeks' annual leave entitlement.
There will still be two types of holiday entitlement
The Government had consulted on various proposals relating to annual leave entitlement and holiday pay earlier in the year. One of the proposals was to combine the two different types of annual leave - the four weeks based on EU law and the additional 1.6 weeks under UK law - into a single entitlement of 5.6 weeks' holiday. The aim was to simplify the calculation of holiday pay. However, the Government has decided against going ahead with this.
4. Workers on long-term sick leave must be allowed to carry over holiday
The Regulations also require annual leave to be carried over where a worker has been unable to take it due to long-term sickness absence.
To avoid workers accruing large amounts of holiday to be taken on their return from sickness absence, or paid in lieu at the end of their employment, the Regulations state that the carried forward holiday entitlement must be taken within 18 months of the end of the holiday year in which it accrued.
This applies only to the carry-over of four weeks' annual leave entitlement derived from EU law.
5. Workers who have not had a reasonable opportunity to take holiday must be allowed to carry it over
There will be more of an impetus for employers to encourage workers to take their full holiday entitlement, as a result of new provisions under the Regulations.
Workers will be entitled to carry over untaken annual leave where the employer has not:
- recognised their right to paid statutory annual leave;
- given them a reasonable opportunity to take the leave;
- encouraged them to take the leave; or
- informed them that any untaken leave that cannot be carried forward will be lost at the end of the holiday year.
This also applies where the employer has allowed the worker to take annual leave but has not paid them for it.
This carry-over requirement applies only to the four weeks' annual leave entitlement derived from EU law.
There is no limit to how much carried forward annual leave can accrue. The right to carry it forward will continue for as long as the employer's failure to enable the worker to take it continues.
Employers should make sure they have processes in place to monitor whether workers are taking their holiday, and to encourage them to take it where necessary. Training for line managers may be necessary, to make sure workers have a reasonable opportunity to take their holiday before the end of the holiday year.
6. Normal pay for the purposes of calculating holiday pay includes overtime and commission
The Regulations set out the elements of pay that are to be included when establishing a worker's "normal" rate of pay for the purposes of calculating holiday pay.
According to the Regulations, normal pay includes:
- payments, including commission payments, that are intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out;
- payments for professional or personal status relating to length of service, seniority or professional qualifications; and
- other payments, such as overtime payments, that have been regularly paid to a worker in the 52 weeks preceding the calculation date.
These provisions apply only to the four weeks' holiday derived from EU law, and to the payment of accrued holiday for irregular hours workers and part-year workers, although employers can choose to use the same method for all annual leave.
This does not reflect a change for employers. The Regulations take the existing position, which is based on EU case law, and confirms it in UK legislation.
7. Workers will no longer be able to carry over leave that was untaken because of coronavirus
An amendment to the Working Time Regulations 1998 was made in 2020 to allow for the carry-over of annual leave where it was not reasonably practicable to take it because of the impact of coronavirus (either on the worker, the employer, the wider economy or society).
The Regulations remove this amendment so this leave can no longer be carried over. Any outstanding carried over leave must be taken before 31 March 2024.
Employers who have workers who still have untaken carried over leave should inform these workers that this leave must be taken before 31 March 2024 and make sure that they have the opportunity to take it.
Other employment law developments
The draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 also include some measures that are not related to holiday pay.
See the Legal timetable for details of other upcoming employment law developments.