On 1 January 2024, the government amended the holiday provisions in the Working Time Regulations and has published guidance on calculating holiday entitlement and holiday pay with a particular focus on “irregular hours” and “part year” workers.

The new legislation intends to “simplify” holiday pay entitlement and calculations and effectively reverses the UK Supreme Court’s decision in Harpur Trust v Brazel.

What are the key changes?

  • There are new rules for “irregular hours” and “part year” workers who have holiday years starting on or after 1 April 2024 which will allow employers to:
    • calculate holiday pay entitlement for these types of workers by using the accrual method of 12.07% of the hours worked by the individual in the previous pay period;and
    • “roll-up” holiday pay  – meaning that holiday pay can be paid as an additional element of basic pay rather than paying it when holiday is actually taken;and
    • carry over part of a worker’s holiday entitlement to the next holiday year with their agreement for where employers have failed to provide reasonable opportunity to take holiday due to family-related leave, sick leave, and other situations.
  • Removing the “Covid roll-over rules”, which allowed employees to carry forward unused holidays for a period of two years in certain circumstances. Workers will have until 31 March 2024 to use any holiday carried over due to the pandemic.
  • Providing a new comprehensive definition of what should be included as “normal remuneration” for the purpose of calculating Working Time Regulation holiday pay entitlement, which includes elements such as commission, overtime and any other payments that are “intrinsically linked” to the contract of employment.

Definition of “irregular hours” and “part year” workers

According to the guidance, an irregular hour worker is someone whose number of hours that they will work in each pay period is “wholly or mostly variable” under the terms of their contract. This appears to capture many zero hours workers and variable hours workers (who are contracted to have variable hours). However, it does not capture those with hours fixed by their contract but where the working pattern in which they will work them varies, for instance on a rotating shift pattern.

The guidance also states that a part-year worker is an individual who is only required to work part of the year under their contract and who has periods within the year of at least one week where they are not required to work and are not paid. This appears to capture hourly paid term time only workers and seasonal workers (but arguably not those who are contracted to work term time but paid in regular monthly instalments).

Note however that these definitions have yet to be tested in the employment tribunal.

How will the Regulations apply?

Note that most parts of the updated Regulations will only apply in relation to leave years beginning on or after 1 April 2024. This means that where you use the calendar year as your holiday year, the changes will not apply until 1 January 2025, unless the holiday year is changed.

How can you ensure you are compliant with the new rules?

Review your holiday policies and procedures to ensure these reflect the new rules and ensure that systems and records are in place to ensure compliance.

If you require advice on holiday pay and entitlement for your workers and employees, or you need assistance in updating your holiday policies or employment contracts please get in contact with member of the Employment team.