Holiday pay is an area of employment law which has been subject to influence from EU law and EU and UK case law.  Post Brexit, the Government has power to revoke all existing EU derived legislation and principles.  In addition, the Supreme Court case of Harpur Trust -v- Brazel found that part-year workers should receive the equivalent of full-time holiday entitlement.  Arising from the above, the Government instituted a consultation in 2023 regarding holiday and holiday pay entitlement.

Accordingly, the Government has decided to introduce changes to the Working Time Regulations from 1 January 2024 to codify holiday pay law.

The calculation of a week’s pay for holiday purposes and the entitlement to carry over holiday applies to all workers, whether full time, part time, irregular-hours or part-year.

A Week’s Pay for Holiday Pay

Employees remain entitled to 5.6 weeks statutory paid holiday. However, their entitlements to pay differ between the first 4 weeks of that period (which derives from EU law) and the last 1.6 weeks (derived from the existing UK additional entitlement).

From 1 January 2024, for the first 4 weeks of statutory holiday entitlement the following elements of pay must be included in the holiday calculation:-

• Performance related commission.
• Payments related to length of service, seniority or professional qualifications
• Overtime – if paid regularly in the 52 weeks prior to the calculation date.
• The remaining 1.6 weeks are paid in accordance with the Employment Rights Act definition as remuneration “which is payable under the contract of employment”.

An employer can, of course, include all the elements in all 5.6 weeks’ holiday pay if they wish.

Carry over of Holiday

EU law allowed for holiday to be carried over to the next holiday year if employees had been unable to take holiday due to family leave (such as maternity leave) or sickness.  This entitlement to carry over statutory leave is to continue under UK law from 1 January 2024.

Leave can also be carried over if the employer has acted in some way to prevent the employee from taking leave.  This only applies to 4 weeks’ statutory leave

The sections below only apply to irregular-hours and part-year workers.

Irregular Hours and Part-Year Workers

An Irregular-Hours Worker is someone who under their contract work wholly or mostly variable hours in each pay period.

A Part-Year Worker is someone who under their contract is only required to work part of a year and has periods of a least a week where they do no work and are not paid.

For these two categories of workers new provisions apply from 1 January 2024:-

• Holiday will accrue based on the hours worked in the previous pay period and will accrue at 12.07% of hours worked in that period
• Employers can apply rolled-up holiday pay if they wish. See below.

This reverses the Harpur Trust decision and makes clear that part-year workers and irregular-hours workers should have their holiday entitlement pro-rated.

Rolled-up Holiday Pay

This only applies to part-year and irregular-hours workers.

Rolling up holiday pay means that rather than paying holiday pay when holiday is taken, an additional 12.07% is paid to the worker for each pay period they work so that they are paid holiday pay as they work.

A case in 2006 found this practice to be in breach of EU law, and Government guidance on holiday pay recommended employers do not roll up holiday pay, although it continued to be used.

Last year’s consultation has resulted in the Government now accepting this as a practice, Accordingly, employers can now legitimately pay rolled up holiday pay.  This provision applies from 1 April 2024.

This is a complex area of law, and for more detail please see Holiday pay and entitlement reforms from 1 January 2024 – GOV.UK (www.gov.uk)

For more information please contact marina.vincent@haroldbenjamin.com