Holiday Pay for Irregular Hours & Part-Year Workers – What’s New?

The government has introduced reforms to simplify holiday entitlement and holiday pay calculations in the Working Time Regulations – que huge sigh of relief!

The reforms apply to leave years beginning on or after 1 April 2024 and include:

1. introducing a method to calculate statutory holiday entitlement for irregular hours and part-year workers.
2. introducing a method to work out how much leave an irregular hours or part-year worker has accrued when they take maternity or family related leave or are off sick.
3. introducing rolled-up holiday pay as an alternative method to calculate holiday pay for irregular hours workers and part-year workers.

Definitions

Irregular hours worker

A worker is an irregular hours worker, in relation to a leave year, if the number of paid hours that they will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable, for example a zero hours or casual worker.

Part-year worker

A worker is a part-year worker, in relation to a leave year, 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. This includes part-year workers who may have fixed hours, for example, teaching assistants who only work during term time, and who are paid only when working.

1. How is statutory holiday entitlement accrued?

To be clear, for leave years that begin before 1 April 2024, holiday entitlement will continue to be calculated in the same way for irregular hours and part-year workers.

The change comes in to play for leave years beginning on or after 1 April 2024, where there is a new accrual method for irregular hour workers and part-year workers in the first year of employment and beyond.

Holiday entitlement for these workers will be calculated in hours not weeks, at 12.07% of actual hours worked in a pay period. That’s right, the return of the 12.07% method.

In case you have already erased it from your memory, 12.07% is 5.6 ÷ 46.4, where 5.6 is the statutory minimum annual leave entitlement and 46.4 is the number of working weeks in a year after statutory annual leave is deducted.

To find the relevant percentage for workers with a holiday entitlement more than the minimum, you would need to do the following calculation: (total holiday entitlement ÷ remaining working weeks in the year) x 100.

2. Calculating statutory holiday entitlement accrued by irregular hours and part-year workers while they are on maternity or family related leave or off sick

Some irregular hours and part-year workers may take maternity or family related leave, depending on their employment status, or be off sick within an annual leave year. During these absences, a worker continues to accrue leave.

A calculation method has been introduced for leave years beginning on or after 1 April 2024 to help employers find out how much leave is accrued by an irregular hours or part-year worker in such circumstances.

The calculation method follows the same principle as the accrual method for statutory holiday entitlement outlined above (1), but with the addition of a 52-week relevant period. An employer would need to look back and work out an average of hours worked across the 52 week period, to inform what period of leave should be deemed to have accrued during the period of absence.

Further guidance and working examples of how to implement this calculation can be found on the Government website:

Holiday pay and entitlement reforms from 1 January 2024 – GOV.UK (www.gov.uk)

3. Rolled-up holiday pay

Rolled-up holiday pay allows employers to include an additional amount with every payslip to cover a worker’s holiday pay, as opposed to paying holiday pay when a worker takes annual leave.

The regulations allow employers to use rolled-up holiday pay as an additional method for calculating holiday pay for irregular hours and part-year workers only, for leave years beginning on or after 1 April 2024.

Rolled-up holiday pay should be based on a worker’s total pay in a pay period and should be clearly marked as a separate item on their payslip. The holiday pay should be paid at the same time as the worker is paid for the work done in each pay period.

If you intend to start using rolled-up holiday pay, we recommend that you get in touch with us, as the change may amount to a variation to contract.

Employers that do not want to use rolled-up holiday pay for irregular hour and part-year workers can continue to use the existing 52-week reference period to calculate holiday pay for irregular hour workers if they choose to do so.

Action to Take

How quickly you need to take action on these changes will depend on when your leave year starts.

For those who employ irregular hours or part-year workers, with a leave year starting on 1^st April, it is certainly something to be looking at now – reviewing your holiday pay arrangements, policies, and contracts for in line with the new reforms.

If you would like further support in understanding or implementing changes to your holiday entitlement or pay arrangements, please get in touch with a member of the Real Employment Law team.