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On 1 January 2024, the Government brought into force a raft of major amendments to existing holiday pay regulations.
In this article, we set out the key changes employers and HR practitioners need to know.
The changes to the Working Time Regulations 1998 (the regulations that, among other things, determine how holidays are accrued and paid) can be broadly divided into two types:
It is important that these changes are understood and adopted where relevant so that employers can ensure compliance and avoid unnecessary breaches and holiday pay claims from workers.
In particular, employers who use irregular hours or part-year workers must review their methods for calculating holiday entitlement and pay and ensure this aligns with the new rules.
The regulations define such workers as follows:
New guidance by the Department for Business & Trade (which can be read here) explains these definitions in more detail and gives examples of the types of workers they may apply to.
There are no changes in how holiday entitlement accrues for normal workers and employees who are not on irregular hours or part-year contracts.
However, there is now a new method of holiday accrual for irregular and part-year workers. This change is intended to address complaints of the unfairness of such workers enjoying a greater holiday entitlement than regular workers (proportionate to the hours worked) because of the Supreme Court's previous decision in Harpur Trust v Brazel [2022] UKSC 21.
Holiday will be calculated in 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 pay period.
However, an average over a 52-week reference period will be used to calculate the amount of holiday accrued during a period of sick leave or statutory leave (such as maternity or family leave).
Employees and workers are entitled to 5.6 weeks of holiday per leave year. It is well established that four weeks of this entitlement derives from EU law (referred to as "the four weeks" in this article), and 1.6 weeks derives from UK regulations (referred to as "the 1.6 weeks" in this article).
The two "pots" of leave, unhelpfully for employers and HR, have long been subject to different rules as to how holiday pay is calculated and holiday carry-over rights.
However, under the new rules, there is now no such distinction for irregular and part-year workers, who instead receive a single, unified holiday entitlement with a single set of rules and rights applying to all of it.
We consider the impact of this further below (see "What should be included in the calculation of a week's pay for holiday pay purposes?" and "The right to carry over holiday to the next holiday year").
There are now two methods for an employer to choose from when calculating holiday pay for irregular hours and part-year workers:
If an employer intends to start using rolled-up holiday pay, they should inform their workers of this and mark it clearly on their payslips.
The calculation of holiday pay for these workers must include the extra items set out in the amended definition of "a week's pay" (see "What should be included in the calculation of a week's pay for holiday pay purposes?" below).
Separate from the above changes for irregular hours and part-year workers, the Government has also re-stated and codified numerous principles from EU case law that govern how the four weeks of holiday entitlement derived from EU law (separate from the 1.6 weeks derived from UK regulations) is calculated and paid for other employees and workers.
These are largely the same as existing rules that employers should already be following, but this move by the Government aims to put these case law principles down in writing within the regulations so as to make the rules clearer for employers and employees.
A week's pay when calculating holiday pay for the four weeks derived from the EU must include the following:
Employers should review their current holiday pay practices to ensure they are paying this compliantly with the above elements included where relevant.
This expanded definition does not apply to the 1.6 weeks' holiday derived from UK law, which continues to be calculated and paid using its own unchanged definition of a week's pay.
However, there are a few different approaches employers might choose to take:
As noted above, irregular hours and part-year workers no longer have separate "pots" of four and 1.6 weeks.
As a result, the above-expanded definition of a week's pay must be used for all holiday entitlement for irregular and part-year workers, whichever method is used to pay this (again, only applying to leave years beginning on or after 1 April 2024).
In the same way, the Government has now re-stated and codified within the regulations a series of legal rights derived from case law, which set out when a worker may carry over the holiday from one leave year to the next and what limits there are on this.
Below, we have listed the situations under the new regulations in which a worker has the right to carry over a holiday.
It is important to note that they only apply to the four weeks' holiday derived from EU law, but not the 1.6 weeks derived from UK law (with one exception – the right to carry over in family-leave-related circumstances).
However, the 1.6 weeks (or part of it) may be carried forward if there is a "relevant agreement" between the parties enabling this.
For irregular hours and part-year workers, the carry-over rights listed below will apply to the entirety of their holiday entitlement. Additional regulations for such workers allow them and their employer to reach a "relevant agreement" on carry-over rights.
Subject to the above caveats, workers have a right to carry over if any of the following apply:
In such cases, the right to take the carried-over leave will last until the end of the first full leave year, in which there is no such failure by the employer.
In 2020, the Government introduced emergency laws in response to the COVID-19 pandemic, which relaxed existing rules on carrying over holidays and meant that workers could carry leave into the next two years if they could not take it due to the impact of COVID-19.
However, starting 1 January 2024, workers can no longer accrue COVID-19 carry-over leave.
Workers will still be able to use the leave they accrued before 1 January 2024 or before or on 31 March 2024.
If you have any questions or need advice on how best to implement these changes, please contact our Employment Law experts at: