Calculating Holiday Pay

Holiday pay has been a topical issue over the past two years following Supreme Court decisions that have significantly impacted how pay should be calculated. As of 1 January 2024, a new statutory instrument has been implemented which will simplify how employers how holiday pay can be calculated.

Whilst holiday pay can be relatively straightforward where an employee works for fixed regular hours, the situation is more complicated where the employee works irregular hours. In 2022, the Supreme Court judgment in Harpur Trust v Brazel defined the position as to how pay should be calculated in such situations, which has led to significant confusion. The Government has now sought to simplify the position with the introduction of the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, which were implemented on 1 January 2024.

Under the new Regulations, for employees who either work “irregular hours”, or only work for part of the year, it is now lawful for an employer to calculate the annual leave accrued by that employee based on 12.07% of the hours worked by the employee. This is the exact opposite to what the Supreme Court rules in Harpur Trust v Brazel, however in our opinion results in a much more straightforward calculation for employers.

The regulations also make it lawful for an employer to use “rolled-up” holiday pay for irregular hours workers and part-year workers. This would allow an employer, rather than paying holiday pay when an employee takes annual leave, to instead include an additional payment amount within every payslip to cover an employee’s holiday pay that has accrued during that period. This will only be permitted for leave years beginning on or after 1 April 2024.

It is not possible to set out all of the changes that the regulations make within this article, however a summary of the further changes are as follows:

  • There is further clarification of the circumstances where an employee will be permitted to carry forward their annual leave into the following holiday year. This includes where an employee is unable to take holiday due to sickness absence, statutory leave (including maternity and paternity leave), is not given reasonable opportunity to take holiday, or is not informed that they would lose their entitlement if they did not take all holiday in the relevant annual leave year.
  • There is no longer an obligation on employers to maintain records of the daily working hours of each worker. However, we would still advise doing so if you have any employees who work regular hours, as this will be necessary for holiday pay calculations.
  • Where a transfer takes place under TUPE, there is generally a requirement to inform and consult with employee’s representatives. An exception exists where the transfer relates to businesses with fewer than 10 employees, in which case the employer may consult directly with the employees. This has been widened, so the exception now includes businesses with fewer than 50 employees, and transfers where the number of employees being transferred is less than 10.

If you have any questions about the new regulations, or if you would like further guidance in relation to any of the areas affected, please get in contact with our specialist employment team.

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