Holiday leave and pay – Government guidance issued
The Government has published guidance on the new holiday pay and entitlement provisions that came into force on 1 January 2024.
An employee’s statutory holiday entitlement under the Working Time Regulations (WTR) is made up of 4 weeks minimum leave (20 days for an employee who works 5 days a week) and 1.6 weeks additional leave (8 days for an employee who works 5 days a week). This gives a total of 5.6 weeks, which is equivalent to 28 days for an employee who works 5 days per week.
The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (the Regulations) amend the WTR. They include express provisions on the rights of employees to carry forward annual leave in certain circumstances; and new provisions in relation to irregular hours workers and part-year workers.
Carrying forward leave
The provisions in relation to entitlement to carry forward leave apply from 1 January 2024. The guidance confirms that an employee will be entitled to carry forward:
- up to 28 days of their statutory holiday entitlement if they are unable to take it due to a period of maternity or other family related leave;
- up to 20 days of their statutory holiday entitlement if they are unable to take it due to sickness absence. However, the holiday carried forward must be taken by the end of 18 months following the end of the leave year in which it accrued;
The guidance also states that an employee will be able to carry forward their statutory holiday entitlement if the employer has:
- refused to pay a worker their paid leave entitlement
- not given them a reasonable opportunity to take their leave or encouraged them to do so; or
- failed to inform them that untaken leave must be used before the end of the leave year to prevent it from being lost.
However, under the Regulations this right will only apply to the statutory 4 weeks leave (up to 20 days).
The guidance also clarifies that from 1 January 2024, employees can no longer accrue COVID carry over leave. Any leave that was accrued before 1 January 2024 must be used on or before 31 March 2024. The emergency legislation that was introduced during the course of the pandemic has been revoked.
Irregular hours workers and part-year workers
New provisions in relation to irregular hours workers and part-year workers apply to holiday years that start on or after 1 April 2024.
Under the Regulations:
- A worker is an irregular hours worker, in relation to a leave year, if 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.
- A worker is a part-year worker, in relation to a leave year, if, under the terms of their contract, they are required to work only part of that year and there are periods within that year (during the term of the contract) of at least a week which they are not required to work and for which they are not paid. The guidance states that this includes part-year workers who may have fixed hours, for example, teaching assistants who only work during term time, and who are paid only when working.
For these employees, new provisions will apply. Under the new regulations, there is no distinction between the statutory minimum 4 weeks leave and the additional 1.6 weeks leave. Statutory holiday entitlement will be calculated in hours rather than weeks, at the rate of 12.07% of the actual hours worked in a pay period. Holiday will accrue on the last day of each pay period. Employees will be able to carry forward that holiday entitlement if:
- They are unable to take it as a result of taking sick leave or statutory leave
- The employer fails to recognise their right to paid annual leave,
- The employer has not given them a reasonable opportunity to take leave or encouraged them to do so or informed the worker that leave not taken by the end of the leave year will be lost.
In addition, employees will be able to carry forward part of their leave if there is a relevant agreement with the employer.
The guidance sets out examples of how to calculate statutory holiday accrual; how to calculate statutory leave entitlement when an employee leaves during the leave year; and how to calculate statutory holiday accrual during maternity, family or sick leave.
Holiday pay rates
The guidance clarifies that from 1 January 2024, ‘normal’ pay must include:
- Payments, including commission payments, intrinsically linked to the performance of tasks that an employee is contractually obliged to carry out;
- Payments relating to professional or personal status relating to length of service, seniority or professional qualifications; and
- Other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date.
For employees with normal working hours whose pay does not vary, the statutory minimum 4 weeks of an employee’s holiday must be paid at their ‘normal’ rate of pay. The remaining 1.6 weeks’ entitlement can be paid at the ‘basic’ rate of pay. The Regulations do not specify which entitlement should be used first.
Irregular hours workers and part-year workers should receive ‘normal’ pay for all of their statutory holiday entitlement. Employers will be able to choose to use rolled-up holiday pay for irregular hours and part-year employees for leave years beginning on or after 1 April 2024. This allows the employer to pay the employee an additional amount each pay period to cover the employee’s holiday pay, rather than paying holiday pay when the employee actually takes their annual leave. The guidance sets out examples of how to calculate rolled-up holiday pay. Alternatively, employers can choose not to use rolled-up holiday pay and instead use the existing 52-week reference period method to calculate the employee’s holiday pay.
Employers should review their contracts of employment, holiday policies and their communications to employees to ensure that they comply with the new Regulations. Employers should also actively encourage their employees to take their holiday each year and remind them that any holiday not taken will be lost.
As noted in the guidance, whether an employee is classified as an irregular hours or part-year worker will depend on the precise nature of the working arrangements. Employers should consider seeking legal advice where this is not clear. Incorrectly classifying employees may lead to errors in calculation of their holiday leave and pay.
When it comes to holiday pay, introducing rolled-up holiday pay for existing employees who fall under the definition of irregular hours or part-year workers may be a change to terms and conditions. Employers should consider seeking legal advice before introducing such a change.
It is important to bear in mind that the Regulations relate to the statutory holiday entitlement of 5.6 weeks. The rules and obligations relating to any additional contractual holiday entitlement offered by an employer will be governed by the contract of employment or holiday policy.
As specifically noted, the guidance does not provide definitive answers to all individual queries, and it is not a substitute for seeking legal advice. The issue of holiday leave and pay has become increasingly complex, and queries will undoubtedly arise from the Regulations. It is likely that caselaw on the interpretation of the Regulations will follow in due course.
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©2024 SCRASE LAW LTD. THIS POST IS FOR GENERAL INFORMATION ONLY AND IS NOT ADVICE. YOU ARE RECOMMENDED TO SEEK PROFESSIONAL ADVICE BEFORE TAKING ANY ACTION ON THE BASIS OF THIS POST
15 January 2024