Holiday pay: how to ensure your business is ready

Glenn Hayes is head of the Leeds Employment Team at Hill Dickinson.

On 1 January 2024, the government announced changes to the Working Time Regulations for irregular and part-year workers that come into effect on 1 April 2024.

Workers are considered irregular if the hours they get paid for in each pay period vary based on their contract. Part-year workers are required to work for part of that year, with periods of at least a week at a time where they are not required to work and therefore aren’t paid.

The legislation was introduced to clarify how holiday pay works for these employees and standard workers to simplify the process for employers. But confusion remains around how the polices will be implemented.

To clarify what this legislation actually means, there are some key changes that employers and employees should know.

The reintroduction of rolled-up holiday pay

From April, rolled-up holiday pay – the system where employers include an amount for holiday pay in the employee’s hourly rate – will be reintroduced as an option for irregular or part-year workers. The change will let employers give workers a 12.07% increase on their hourly pay, essentially making up for their entitlement to statutory holiday pay.

In theory, this should make it easier for employers to approve holidays of zero-hours, casual or ‘bank’ workers. One thing to be aware of is that a worker receiving rolled-up holiday pay is entitled to continue receiving the holiday pay during sick leave and family leave.

Clarity for employers

Perhaps the most misunderstood aspect of the new policy is around the pay/benefits that must be included when calculating the holiday pay of all workers (including employees who work standardised hours or permanently).

Some employers may also be uncertain about the regulations because they require calculating holiday pay based on an average worker’s earning over 52 weeks, rather than just the hours they actually worked.

Holiday pay must now also include:

• Payments that are directly linked to the performance of an employee’s task which a worker must carry out based on their contract.
• Payments for professional or personal status in relation to length of service, seniority, or professional qualification. This can include things like allowances for fire wardens, first aiders, or key holders.
• Other payments that are regularly paid to the employee in the 52 weeks prior, for example: overtime, car allowances, or gym allowance.

New regulations mean that these rules apply to the first four weeks of annual leave for standard workers, or for up to 28 days’ leave for zero-hours and term-time only workers.

How to prepare for the new policies

Some employers are adopting a ‘wait and see’ approach to holiday pay issues. However, without a full understanding of the new rules, there’s a risk that if payments are too low, these could add up over time and result in employers having to pay compensation when an employee leaves the company.

Understanding the changes in full will help employers feel equipped to advise on holiday rights as April fast approaches, and our holiday pay audit can assist any employer in determining this if concerned.