UK Government publishes new holiday pay and entitlement laws
The UK Government has published new regulations, significantly changing the way that holiday entitlement and pay should be calculated for workers on permanent contracts but engaged for part of the year or who have irregular working hours.
How did we get here?
Last year the Supreme Court decided in Harpur Trust v Brazel, that those employed under a permanent contract to work part of the year, are entitled to 5.6 weeks’ holiday, and do not accrue holiday entitlement on a pro rata basis in accordance with hours worked (effectively banning the 12.07% accrual method for calculating holiday entitlement). The ruling also applied to those working irregular hours.
This created significant alarm in the health and social care sector where zero hours and casual worker contracts are commonplace.
Following the ruling, the Government launched a consultation on holiday entitlement and pay.
What is changing?
The Government has now published the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, effectively reversing the decision of the Supreme Court in Harpur Trust. The new laws will provide a statutory basis for the accrual method of calculating holiday entitlement for irregular hours and part-year workers, so that employers can calculate holiday entitlement as 12.07% of the hours worked.
The new Regulations will be implemented from 1 January 2024; the existing rules will remain in place for holiday entitlement taken up to and including 31 December 2023. From 1 January 2024, part year and irregular hours workers will accrue holiday at the rate of 12.07% of hours worked and will be paid at the rate of 12.07% of pay in the pay period.
How does this impact holiday pay calculations?
The Government has confirmed that rolled-up holiday pay will be permitted for part-year workers and those with irregular hours (currently this is unlawful). Rolled up holiday pay will have to be calculated based on a worker’s total earnings in the relevant pay period.
Rolled up holiday pay will enable employers to pay workers an enhancement to their regular pay to reflect their holiday pay entitlement instead of having to take paid annual leave. This makes more practical sense for those working in a casual and adhoc way, but for those who in practice work regular hours, it could act as a disincentive to take holiday and give rise to potential wellbeing and health and safety risks.
As an alternative to rolled up holiday pay, employers could continue with the current method of calculating holiday pay. This involves calculating holiday pay by reference to average weekly pay in the 52 weeks preceding annual leave being taken.
Given the preference for a simplified and practical approach, and the fact that the accrual method was widely used before the Harpur Trust case, these new Regulations will likely be welcomed by care providers.
Calculating holiday entitlement and pay can be tricky, but we have significant experience in advising providers on these issues. Before the changes are implemented, we would recommend that you:
- Consider who in your workforce meets the definition of a part year or irregular hours worker under the Regulations;
- Decide which method of calculating holiday pay you will adopt;
- Ensure your payroll teams are involved in any changes and that they are reflected in your HR and payroll processes, systems and policies; and
- Review and update your employment contracts for irregular hours and part-year workers.
We shall also be discussing the changes at our next employment law update for care providers
30 November 2023 at 10am
The webinar will cover the following topics:
- Handling poor performance and absences from work in the context of menopause and discrimination claims
- New rights for staff – predictable working, flexible working and carers leave
- Practical tips to deal with data subject access requests and the ICO’s new guidance
- Immigration update on recent changes and how to prepare for a compliance visit