Holiday pay rules 2024: guide to changes

As we move into summer, now seems the perfect time to explore the current status of holiday pay rules in 2024 with Cybill Watkins, Product Legislation Manager at Zellis.

The Employment Rights (Amendment Revocation and Transitional Provision) Regulations 2023 first came into force on 1 January 2024. The new rules include immediate changes to:

• The definition of a week’s pay when calculating holiday pay
• How holiday rules are carried over

For holiday years starting from 1 April onwards, changes include:

• A reintroduction of a ‘12.07% of hours worked’ calculation for irregular hours and part-year workers – rolled-up holiday pay
• The introduction of percentage accrual of holiday for irregular hours and part-year workers.

What’s changed with holiday pay rules in 2024?

Let’s explore 4 key areas to be aware of:

• Holiday pay calculations
• Carrying over leave
• Holiday accrual for irregular hours and part-year workers
• Rolled-up holiday pay for irregular hours and part-year workers

1. Holiday pay calculations

There are two aspects to UK holiday entitlement:

• Everyone is entitled to four weeks’ leave based on European Union (EU) law. Employers are required to pay this leave at a ‘normal’ rate.
• UK residents are entitled to an extra 1.6 weeks’ leave under UK law. For most classifications of workers, employers may pay this leave at a basic rate.

The amount of holiday has not changed – the basic minimum is 5.6 weeks. However, there is a change in that the accrual or rolled-up holiday pay will all be paid at the same rate.

What’s changed with holiday pay calculations in 2024?

The government has confirmed employers of eligible workers must now take certain considerations into account when making holiday pay calculations. Specifically, this means when calculating a worker’s normal rate of pay for their entitlement. The move means that these case law principles are now being written into UK legislation.

Such considerations include:

• Commission (and similar), which is intrinsically linked to whether workers perform tasks they are contractually obliged to carry out
• Payments relating to professional or personal status based on length of service, seniority, or professional qualifications
• Overtime (and similar) that employers have regularly paid workers in the 52 weeks preceding the calculation date.

What does it mean for employers?

Many employers do not currently distinguish between EU-based and UK-based holiday entitlement. Instead, they calculate workers’ pay for the entire 5.6 weeks based on normal rates. In this instance, they have no need to revisit their approach. But those that do make the distinction will need to review and amend their policies and processes based on the new requirements, should they decide to move eligible workers onto the new way of calculating pay and leave.

2. Carrying over leave

EU case law indicates that workers can carry forward holiday they have accrued but were unable to take due to sickness or family leave.

What’s changed with carrying over leave in 2024?

The new regulations mean that workers will be able to carry forward:

• All of their 5.6 weeks’ statutory annual leave, and any additional, entitlement into the next holiday year if they are unable to take it due to family leave
• Their entitlement if unable to take it due to sick leave (however, it must be taken within 18 months of the holiday year in which the entitlement originally arose)

The new legislation also states that workers can carry forward any holiday entitlement they have not taken if employers:

• Do not recognise their right to paid annual leave
• Give them a reasonable opportunity to take leave or encourage them to do so
• Have not warned them of the risks of losing their annual leave entitlement at the end of the holiday year.

What does it mean for employers?

Employers should ensure they have systems in place to track what leave is being taken and by whom. They should also make it clear they are permitting, and ideally even encouraging, workers to take their annual leave entitlement. In this context, it is important to clarify that if they do not use it, they could lose it.

3. Holiday accrual for irregular hours and part-year workers

Changes have been introduced to how irregular hours or part-year workers can accrue their statutory annual leave entitlement. To clarify what these worker classifications mean:

• The work of irregular hours workers is mostly or completely variable over each pay period
• Part-year workers have periods of at least a week over the course of the year when they are not required to work and are not paid.

What’s changed with rules for accrual of holiday pay in 2024?

For leave years that start before 1 April this year, employers will continue to calculate holiday entitlement in the same way they have in the past for irregular hours or part-year workers. If leave years begin after 1 April though, they will need to calculate entitlement as 12.07% of actual hours worked during a given pay period.

The aim of the move is to ensure annual leave entitlement is lawfully pro-rated downwards to reflect the number of hours actually worked. This situation is contrary to that created by the Supreme Court’s recent Harpur Trust v Brazel ruling.

It also means that irregular hours and part-year workers now build up holiday entitlement as they work rather than obtaining a full year’s entitlement at the start of the year. Special rules also exist relating to holiday accrual for people who are on maternity and sick leave.

What does it mean for employers?

Employers will need to review and amend their policies and processes relating to irregular hours and part-year workers based on the new requirements, if they do decide to follow this new way of calculating and paying. There is no change to how other workers accrue their statutory annual leave entitlement though.

4. Rolled-up holiday pay for irregular hours and part-year workers

In 2006, the European Court of Justice (ECJ) ruled that rolling up holiday pay was incompatible with the Working Time Directive. ‘Rolled-up’ holiday pay means paying an employee’s holiday and basic pay at the same time by rolling the two payments together.

But the ECJ ruling meant the practice became unlawful in case it discouraged workers from taking time off. Even so, many UK employers have continued using the approach.

What’s changed with rolled-up holiday pay rules in 2024?

The new regulations mean employers are now permitted to roll up holiday pay for irregular hours or part-year workers only, although it is not mandatory. Those that do not wish to do so may continue using the existing 52-week reference period to calculate holiday pay. The government has provided guidance here.

For those employers wanting to employ a rolled-up holiday pay approach, they may do so for leave years starting on or after 1 April this year. This holiday pay will be calculated as 12.07% of a worker’s total pay in a given pay period.

What does it mean for employers?

Employers keen to adopt a rolled-up holiday pay system will need to itemise holiday pay separately on workers’ payslips.

Discover more legislation and compliance resources here.