Recent development: Changes to holiday pay and entitlement
The Government recently issued guidance on the new rules regarding holiday entitlement and pay for irregular hours and part-year workers. These new rules (as well as various other changes coming into force in April 2024) are summarised in our March 2024 update.
Background
By way of reminder, on 1 April 2024, new rules around holiday entitlement and pay for irregular hours and part-year workers (defined below) were implemented which make holiday pay calculations easier for employers.
For holiday years starting on or after 1 April 2024, irregular hours and part-year workers will accrue holiday entitlement at the end of each pay period at the rate of 12.07% of hours worked, and can be paid holiday pay on a rolled-up basis (i.e. by way of a supplement to basic pay each month) if the employer wishes.
It is important to note that the new rules only apply to holiday years starting on or after 1 April 2024 meaning that, for those employers whose holiday years run from 1 January to 31 December, the new rules won’t take practical effect until next year.
Where these new rules do not (yet) apply, holiday pay should be calculated in line with Harpur Trust v Brazel (see our update here for more)
Definition of 'part-year' and 'irregular hours' workers
The terms "irregular-hours worker" and "part-year worker" are defined in the regulations and include casual workers, some agency workers, seasonal workers and hourly-paid term-time workers.
The new guidance clarifies that it may be possible for someone to qualify as a part-year worker if they are paid “during” periods they are not working, provided that there is no expectation for them to work in that period and they are not paid “for” that period.
This means that workers engaged for part of the year, but paid on an annualised basis, fall within the statutory definition of part-year worker.
Irregular-hours worker
A worker whose 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.
Examples provided in the Government guidance:
Kevin, a hospitality worker who works a different number of hours each week. Kevin would qualify as an irregular hours worker if his contract says that the hours he works will be wholly or mostly variable in each pay period. Kevin’s contract could be a ‘casual’ contract, otherwise known as a zero-hours contract.
Paul, who has a rotating 2-week shift pattern where he works 15 hours in week 1 and 20 hours in week 2. He does not work overtime. Paul would not qualify as an irregular hours worker if his contracted hours are fixed during both week 1 and week 2. Given that Paul does not work overtime, it is not the case that his hours worked are wholly or mostly variable. Instead, Paul’s hours are fixed (just worked in a rotating shift pattern).
Part-year worker
A worker who under the terms of their contract, is 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.
Example in the Government guidance:
Melanie, a seasonal worker in the farming industry who only works and gets paid during spring and summer months. Melanie would qualify as a part-year worker if her contract reflects that there are periods of time that last more than a week when she is not contracted to work and does not receive pay.
Practical takeaways
- Review contracts to identify affected employees: Employers should review the definitions for irregular-hour workers and part-year workers alongside workers’ contracts to identify those that will fall under the new calculation method for statutory holiday.
- Clarify working patterns in contracts: Employers should ensure that working patterns are clear in workers’ contracts.
- Communicate with employees: Employers should make clear to workers in appropriate documentation how their holiday entitlement is calculated and paid. Any rolled-up holiday pay should be itemised separately on a worker’s payslip.