Yet more changes to holiday calculations

The Government set new regulations when it comes to holiday and holiday pay, which came into effect April 2024. Here’s what you need to know.

The new Regulations took effect on 1st January 2024. However, they relate to leave years starting on or beyond April 1st 2024. Of course, most employers use a 1st January – 31st December leave year – which may mean some HR head-scratching to decide what to do and from when.

If you decide to change your current arrangements, you may well need to advise existing staff what you intend and why. Luckily, the Department for Business and Trade has published detailed guidance to help, which is available on gov.uk. However, we’ve compiled some brief details about the changes below to get you up to speed.

European law “assimilated” into UK law

Let’s be clear from the outset – most clients will not need any changes with regards to the assimilated parts of the EU law. The latest regulations mainly “assimilate” into UK law provisions from European law already familiar to you. For instance, allowing carry forward of untaken holidays from maternity or long-term sickness now becomes UK law. As does counting obligatory and regular overtime, intrinsically linked bonus and commission payments when calculating holiday pay.

Usefully, the regulations reiterate that, otherwise, staff potentially ‘use it or lose it’ in terms of their holidays. During the year be sure to issue reminders that unused leave is potentially forfeited providing they had opportunity to take it.  However, if you don’t remind them to take their leave, beware of claims to allow it to carry forward.

Now, the good news. If your staff are on fixed hours and work a full year, full or part-time, what follows will not apply to you. However, if you employ casual, term-time, irregular, variable or minimum hours staff, read on.

Sensible reversals

You may recall the Supreme Court judgement in Brazel versus the Harpur Trust. This determined that ‘part-year’ (e.g. term-time) staff must get a full year of holidays. Leave could not be pro-rated. This created a major anomaly because part-year staff would effectively receive more holidays than part-timers working the same number of hours overall! This is also where you will have found that 12.07% pay (rolled up holiday pay) was deemed not lawful.

The new regulations potentially reverse this, restoring fairness and equity. They state that “the amount of annual leave to which… a part-year worker is entitled at any time during a leave year is the amount of leave they have accrued in that year”. 

This  will be of keen interest to those who employ term-time and possibly other part-year staff.

But the new regulations go further.

12.07% returns!

Calculating holidays as 12.07% of hours worked reflected the statutory minimum of 5.6 working weeks. It was an easy way of calculating holidays and holiday pay. The impact of the Brazel case saw this long-standing, pragmatic, ACAS guidance vanish (although many employers unofficially continued to use it).

If you provide more than 5.6 weeks’ annual leave contractually you, of course, need to increase the percentage accordingly.

The Department for Business and Trade has now produced detailed guidance (referenced above). Unfortunately, at the time of writing, ACAS guidance has not yet been updated. This means that some information in the recent DBT guidance conflicts with what ACAS is still saying.

And, please remember that the Regulations are about holiday entitlements for irregular hours and part year workers. They do not affect the vast majority of full and part-time staff.

The new regulations also embrace the concept of ‘rolled up holiday pay’ in certain very limited circumstances. The European Courts made this broadly unlawful way back in 2006. Now it’s potentially back, so what might it mean for you?

Casual work (zero hours)

Here it’s eminently sensible to ‘roll up’ holiday pay. Moorepay has argued throughout this whole debacle that, with no mutuality of obligation, you may not offer a further assignment to a casual worker. And a ‘casual’ may refuse any further work you do offer. So, paying holidays at the time of each assignment has always been the fairest way to protect each party’s interests. Of course, the payment must always be separate from,  and additional to, the hourly rate of remuneration. Always show it separately on the payslip.

The legislation states that you still must ensure that the worker takes leave, but if they are receiving pay each pay period then this leave would in essence be unpaid.

Part year workers

Most clients who employ part year staff (you might consider them ‘term-time’ staff) prefer to retain the family and staff retention friendly practice of paying over a twelve-month period, including holidays. The legislation has a definition for a part year worker, which would include term-time workers.

The new regulations do not cover this scenario explicitly. However, if a part year worker is entitled to the amount of leave they have accrued in that leave year, it’s surely not a quantum leap to link this to the 39 weeks during which typical part year staff work. The regulations allow the employer to choose ‘rolled-up’ holiday pay, if preferred. Our experience is this does not assist retention. 

Alternatively, the employer can choose to enable the employee to accrue leave based on 12.07% of hours worked in that holiday year. The employee then books the leave and is paid an average of the previous 52 weeks earnings for that time off (It must be noted that this calculation differs from the average holiday pay calculation all other employees must receive). This may be a more preferential method to be used for part year workers.

Variable and minimum hours

There is a definition of variable hours workers in the regulations in relation to their leave year. This is that “the number of paid hours that they will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable”. It may take ACAS guidance or even a future precedent case to determine this. Currently, the fact that a contract includes minimum hours suggests regularity. It may not be seen as “wholly or mostly” variable. Similarly, if what starts as variable hours morphs into a regular pattern of work, use of rolled up holiday pay becomes questionable. 

Rounding up and down

There is another (minor) nuance in the regulations. You can round up or down to the nearest whole hour. Under the 2007 Working Time (Amendment) Regulations, you cannot round holidays down. For those to whom these Regulations apply, you can. So we resolve one anomaly and create another!

To explain the impact, a casual who works for you for one week of 40 hours becomes entitled to 40 x 12.07% = 4.82 hours. You’d round up to 5 hours of rolled up holiday pay. A casual who undertakes only 20 hours in the same week gets 20 x 12.07% = 2.41 hours. You can round down to 2 hours. [The regulations treat a fraction of less than 30 minutes as zero and one hour if it’s thirty minutes or more.

Additional guidance

This article can only provide a snapshot of elements of the forthcoming regulations. It is not intended to be exhaustive. Some content is opinion, based on what is currently known. Should we become aware of information that changes things post-implementation, we will of course update it.