Holiday Reforms for Leave Years from April 2024
New regulations have introduced a new system of holiday accrual and legalised rolled-up holiday pay for workers with irregular hours and part-year workers. Here's what employers need to know.
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Background: The Harpur Trust v Brazel Decision
The 2022 Supreme Court decision in *Harpur Trust v Brazel* was seismic in its rulings on holiday pay. It concluded that part-year workers were entitled to 5.6 weeks of statutory holiday regardless of how much they worked, and that the common 12.07% method of calculating holiday pay was unlawful. This created complexity for employers and perceived unfairness.
The new 2023 Regulations aim to reverse this decision and provide clarity for specific types of workers.
Who Do The New Rules Affect?
The reforms apply to two specific categories of worker for leave years starting on or after 1 April 2024:
- Workers with irregular hours: Those whose number of paid hours are variable.
- Part-year workers: Those who are only required to work part of the year, with periods of at least one week where they are not required to work and do not get paid (e.g., term-time workers).
The New Holiday Accrual System
For these workers, holiday entitlement will now be calculated in hours instead of weeks. It will accrue on the last day of each pay period.
The 12.07% Rule is Back
Holiday will accrue at a rate of **12.07%** of the actual hours worked in that pay period. This ensures that holiday entitlement is directly proportional to the time worked, addressing the issue raised by the Harpur Trust decision.
An average of hours worked over a 52-week reference period will be used to calculate accrual during periods of sick leave or other statutory leave (e.g., maternity leave).
The New Holiday Pay Options
Under the new regulations, employers can choose one of two systems to pay holiday for these workers:
- Pay holiday when it is taken: Calculated at the rate of a week’s pay for each week’s holiday, using the 52-week average pay reference period.
- Rolled-up holiday pay: Employers can now legally choose to pay an additional 12.07% uplift to the worker’s pay for work done in each pay period, representing their holiday pay.
The legalisation of rolled-up holiday pay, in particular, gives employers a much simpler way of managing holiday for workers with irregular hours.
Frequently Asked Questions
No. These new rules on accrual and rolled-up holiday pay **only** apply to workers with irregular hours and part-year workers. For all other employees and workers with regular hours, the existing rules for calculating holiday entitlement and pay remain the same.
Rolled-up holiday pay is the practice of paying an employee's holiday pay on top of their regular wages, instead of paying them when they are actually on leave. This is now a legal option for irregular hours and part-year workers, using a 12.07% uplift on their pay.
You need to identify which of your workers fall into the 'irregular hours' or 'part-year' categories. Then you must decide which of the two holiday pay systems you will use for them and ensure your employment contracts and payroll processes are updated accordingly.
Need Help with Your Holiday Pay Policies?
The law around holiday pay can be complex. Our solicitors for employers can provide expert advice to ensure your contracts and policies are fully compliant with the latest regulations.
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