Significant changes were made to annual leave and holiday pay laws starting from 1 January 2024, with a completely new regime for irregular hours workers and part year only workers coming into force on or after 1 April 2024 (depending on when their holiday year begins).
What is an irregular-hours worker?
A worker is an irregular-hours worker if, under their contract, the number of paid hours that they will work in each pay period during the term of their contract in that year is wholly or mostly variable.
This is likely to include most zero-hours workers and those workers working on casual or ‘bank worker’ contracts.
What is a part-year worker?
A worker is a part-year worker if, under the terms of their contract, they are 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 (ignoring any periods of sick leave or statutory family leave).
Carry-over
The new rules will allow irregular-hours and part-year workers to carry untaken holiday over to the next leave year in the following specified situations:
- Where a worker was unable to take holiday due to being on maternity/adoption leave, paternity leave, shared parental leave, parental leave, carer’s leave or parental bereavement leave;
- Where a worker was unable to take holiday due to sick leave (i.e. absence from work due to sickness or injury);
- Where the employer has failed to recognise a right to holiday, or a right to paid holiday;
- Where the employer has failed to give the worker a reasonable opportunity to take holiday, or has failed to encourage them to do so; and/or
- Where the employer fails to inform the worker that holiday not taken will be lost at the end of the leave year.
Why is this is an issue?
Having been given only a matter of weeks to prepare before the Christmas break, many employers are still struggling to get to grips with these extensive changes due to their complexity and because parts of the amended legislation are unclear.
- (1) Hill Dickinson have been helping employers audit their compliance with the new rules and have noted that several key issues and risks appear to be flying under the radar of many employers.
Firstly, rolled-up holiday pay is being reintroduced as an option for workers with irregular hours, or who only work and receive pay for part of the year.
This will allow employers to pay those workers a 12.07% uplift on their hourly pay to compensate them for their statutory holiday pay entitlement, payable at the point they are paid rather than when they take time off.
This will no doubt come as welcome relief for employers of zero-hours, casual or ‘bank’ workers, who will seize on this as a simple method of administering the holiday pay entitlements of these workers.
However, there is one much less well publicised point to note about these new rules which employers could easily miss: a worker who receives rolled-up holiday pay is entitled to carry on receiving the holiday pay uplift during any periods of sick leave and statutory family leave (such as maternity or adoption leave).
The regulations contain a complex calculation which tells employers how much they must pay during these periods, based loosely on a 52-week average. We anticipate this will come as a shock to many employers, who may have wrongly assumed that the holiday pay uplift was only payable for hours the worker actually worked.
- (2) Secondly, and this is perhaps the biggest area of risk, is employers’ misunderstanding the new rules about what elements of pay/benefits are to be included when calculating the holiday pay of all workers, including permanent employees.
Much of the extensive case law on this issue from the last decade has now been consolidated and translated into the regulations. However, the regulations arguably go further than the case law in several respects.
To the extent it does not already do so, holiday pay must now include:
- (a) payments that are ‘intrinsically linked’ to the performance of tasks which a worker is obliged to carry out under the terms of their contract (e.g. commission payments and many performance-related annual bonuses assessed via KPIs, on-call / call-out payments, and acting up allowances);
- (b) payments for professional or personal status relating to length of service, seniority or professional qualification (e.g. allowances for fire wardens, first aiders, or key holders); and
- (c) other payments regularly paid to the worker in the preceding 52 weeks (e.g. regular overtime, car allowances, gym allowances). These rules apply to the first four weeks’ annual leave for standard workers, or for up to 28 days’ leave for zero-hours and term-time only workers.
Many employers have so far adopted a ‘wait and see’ approach to these holiday pay issues, and they may well be tempted to continue doing so, but there is a risk that any underpayments roll-over like a snowball crystalising in an entitlement to payment in lieu on termination, so the stakes in the ‘wait and see’ poker game just got much higher!
Content correct at time or writing.