Holiday pay and entitlement reforms
Following Brexit, any European laws that were retained in the UK automatically expired on December 31 unless legislation was brought in to keep them. The Employment Rights Regulations 2023 do just that and are applicable across the UK. As well as reinstating some EU laws, these regulations make several changes to existing laws.
These reforms, which came into force on 1st January, include changes that affect 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. The aim of these changes is to simplify holiday pay and entitlements.
Holiday entitlement
The Regulations define what an irregular-hours or part-year worker is and makes changes for how their holiday entitlement for holiday years beginning 1 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.
Holiday pay
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 has to be paid at the employee’s ‘basic’ rate of pay.
The government has produced guidance containing examples and calculation methods based on the legal minimums set out in the Regulations. You can find more details at this link. https://www.gov.uk/government/publications/simplifying-holiday-entitlement-and-holiday-pay-calculations/holiday-pay-and-entitlement-reforms-from-1-january-2024
Of course, many workers have contracts that entitle them to holiday that exceeds the statutory minimum. Alternatively 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.
The team at our sister brand Payroll Junction, can assist you with managing your payroll including holiday pay and entitlements. Find out more here.