LWA Blog: Holiday pay and entitlement reforms UK employers need to know about

Effective from 1st January 2024, the Working Time Regulations, as amended by The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, has introduced reforms that simplify holiday pay and entitlements. Following Brexit, any European laws that were retained in the UK automatically expired on 31^st December 2023 unless legislation was brought in to keep them. As well as reinstating some EU laws, these regulations make several changes to existing laws including rates of holiday pay and annual leave. They also cover handling irregular hours and part-year workers, accrual of COVID-19 carryover of leave, and rolled-up holiday pay. We provide all the details in our latest blog below by our Payroll Services team, and we have also included information on a recent Supreme Court ruling on backdated holiday pay.

Holiday entitlement for irregular-hour or part-year workers

The Regulations define what an ‘irregular hours’ or ‘part-year’ worker is and makes changes to how their holiday entitlement for holiday years beginning 1^st April 2024 and onwards are accrued.

Employers will need to calculate holiday entitlement for such workers at 12.07% of the hours worked in any pay period. This does not apply to the calculations for regular hours workers.

Please see our previous blog on the background to these new calculations here.

Holiday pay EU vs UK

The Regulations specify that all full-year workers are legally entitled to 5.6 weeks of paid statutory holiday entitlement per year. These are split into two pots.

• Four weeks – the original EU leave entitlement – must be paid at the employee’s ‘normal’ rate of pay and the regulations now specify that this includes overtime pay, commission and allowances.
• The remaining 1.6 weeks – an addition made by the UK – only have to be paid at the employee’s ‘basic’ rate of pay.

Of course, many workers have contracts that entitle them to holiday that exceeds the statutory minimum. Or the changes may make the standard holiday clauses used in an employer’s employment contract no longer legal. Businesses are therefore encouraged to first check individual employment contracts, and if necessary, seek independent legal advice.

COVID annual leave carry over

From 1st January 2024, workers can no longer accrue COVID carryover leave. However, those who accrued leave prior to this date can utilise it before 31^st March 2024. In case of employment termination on or before 31^st March 2024, workers can claim pay in lieu of any remaining entitlement due to the effects of coronavirus.

Backdated Holiday pay – Supreme Court ruling

On 4th October 2023, the UK Supreme Court issued a ruling (in the case of Chief Constable of Northern Ireland v Agnew and others) that employers must consider all forms of remuneration, including overtime and commission, when calculating holiday pay. This means that employees are entitled to holiday pay that accurately reflects their usual earnings, rather than just their basic salary.

One of the critical aspects addressed in the ruling was the issue of backdated holiday pay, where employees may have been underpaid for previous annual leave, and as a result, employers are now obliged to rectify these historical inaccuracies. Employees in England and Wales can claim for underpaid holiday pay for a maximum period of two years preceding their claim.

Employers will need to assess the past records of each affected employee, calculate any discrepancies, and make the necessary payments to rectify the underpayment.

Read more about how this ruling affect employers here.

 Further information on calculating holiday pay

The UK government has created an online resource to help employers calculate holiday entitlement in varying scenarios based on the changed to the Working Time Regulations. The guidance contains examples and calculation methods based on the legal minimums set out in the Regulations.

Click this link for further information from Gov.uk: https://www.gov.uk/government/publications/simplifying-holiday-entitlement-and-holiday-pay-calculations/holiday-pay-and-entitlement-reforms-from-1-january-2024

Our Payroll Services team are here to help

If you have appointed LWA to manage your payroll (or are looking to outsource your payroll requirements to us) our team are here to help you with any queries about the changes to holiday pay calculations. Please speak to Sara Bishop or Angela Kitson by email to mail@lwaltd.com quoting Payroll Services in the subject field, or give us a call on 0161 905 1801. In the meantime, read our Payroll Services client case study on our website here.