Rolled up holiday pay is coming back...
The Government will re-introduce rolled up holiday pay for workers with irregular hours or part year contracts.
Rolled up holiday pay is currently unlawful, however lots of employers have been calling for it to be made lawful again, as they see it as the most practical way to deal with holiday pay for these sorts of workers:
- Casual workers with variable hours
- Workers on zero-hour contracts
- Employees with irregular shift patterns
The Government has said it will legislate to introduce an accrual method to calculate entitlement at 12.07% of hours worked in a pay period for irregular-hours workers and part-year workers in the first year of employment and beyond.
The draft Regulations set out clear definitions of irregular hours workers and part-year workers, so when the new Regulations come in, it will be important that employers check whether a worker is in scope before adopting rolled-up holiday pay.
Why 12.07%?
For each holiday year, a worker is entitled to 5.6 weeks’ leave according to the statutory minimum under the Working Time Regulations. When calculating holiday entitlement, 5.6 weeks of the year will not be worked. The pay is therefore calculated as 52 weeks minus 5.6 weeks, so 46.4 weeks. 5.6 weeks divided by 46.4 weeks is 12.07%.
When does this new rule start?
The Regulations are set to start on the 1st January 2024, leaving employers with a few weeks to adjust and prepare. Employers would be well advised to start taking action soon to ensure their systems and calculation methods are compatible with the proposed changes.
This re-introduced 12.07% rolled up holiday pay method will be allowed for holiday years from 1 April 2024. The 12.07% payment must be paid at the same time as the pay for work performed and be itemised separately on a payslip.
The Government has said it is considering making more changes to the rate of holiday pay, meaning further changes may be on the horizon. We will update you as and when we know more.
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