Holiday Reforms for Leave Years from April 2024​

Background

The 2022 Supreme Court decision in the case of Harpur Trust v Brazel was seismic in its rulings on holiday (Harpur Trust Decision), specifically concluding:

1. Part-year workers are entitled to 5.6 weeks of statutory holiday in each full leave year, regardless of the amount of work done. The Supreme Court also concluded that the statutory annual leave should not be reduced pro-rata for part-year workers. This has arguably led to unfairness under the current rules because part-year workers receive more paid holiday relative to the hours they work compared to other workers. For example, a worker who works 35 hours every other week will work half as much in a year compared to a worker who works 35 hours every week, yet they both have the same entitlement to holiday and holiday pay.
   
   
2. That the method of calculating paid holiday entitlement equivalent to 12.07% of hours worked was unlawful. This has led to difficulty calculating holidays for workers who work irregular hours.      

The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (New Regulations) set out a new system of holiday accrual and legalised rolled-up holiday pay for (1) workers with irregular hours and (2) part-year workers. The New Regulations define these categories as follows:

1. Workers with irregular hours – These are workers whose number of paid hours are variable (or at least mostly variable).

2. Part-year workers – These are workers who under the terms of their contract (1) are required to work only part of the year and (2) have periods in the year of at least one week where they are not required to work and do not get paid (e.g. hourly-paid term-time workers).

It is worth noting that these categories overlap, for example, part-year workers can also have irregular hours.

Reforms

The New Regulations amend the Working Time Regulation 1998 (WTR 1998) to set out a new system of holiday accrual and legalised rolled-up holiday pay (creating new regulations 15B WTR 1998 (for holiday accrual) and 16A WTR 1998 (for rolled up holiday pay)).

Holiday Accrual

For leave years starting on or after 01 April 2024, in relation to the above categories of worker holidays will be calculated in hours (rather than weeks) and will accrue on the last day of each pay period (so, if the pay period starts on the first day of every month and ends on the last day of every month, then holiday will accrue on the last day of each month) at the rate of 12.07% of the actual hours worked in that pay period (the 12.07% calculation is based on statutory holiday only. If a worker is contractually entitled to more than the statutory minimum, then the percentage for calculation will be higher).

An average of hours worked over a 52-week period will be used to calculate the holiday accrued during a period of sick leave or statutory leave (e.g. maternity leave, paternity leave and shared parental leave) disregarding weeks where the worker is on maternity or family-related leave or off sick for any amount of time, but including weeks not worked for any other reason (such as over a 52-week period, the worker in being a part-year worker/worker with irregular hours worked for 26 weeks. The other 26 weeks the worker did not work would be counted for the purposes of calculating average pay).

Holiday Pay

Under the New Regulations, employers can choose one of two systems of pay to implement 15B WTR 1998:

1. Pay holiday when taken, is calculated at the rate of a week’s pay for each week’s holiday (with generally a week’s pay being the average amount of weekly pay over the previous 52 weeks including but not limited to commission, and overtime payments which have been regularly paid to a worker in the 52 weeks before the calculation date). A week’s holiday will be the average number of hours worked in each week over the same period, from which an hourly rate can be produced that reflects the average hourly rate of pay over the previous 52 weeks. If a worker has taken a period of leave within the 52-week reference period, any weeks on which no pay was due should not be included when calculating pay (in contrast to calculating holiday accrued). Any weeks with time off sick, maternity and or family related leave are also excluded. An employer can go back up to 104 weeks prior to the worker’s first day of holiday to replace weeks which are excluded; or

2. For leave years beginning on or after 01 April 2024, the rolled-up holiday which is an uplift of 12.07% to the worker’s remuneration for work done in each pay period (the 12.07% calculation is based on statutory holiday only. If a worker is contractually entitled to more than the statutory minimum, then the percentage for calculation will be higher).

The reforms to holiday accrual address the perceived unfairness of part-year workers being entitled to 5.6 weeks of statutory holiday regardless of work done. This is because, under the New Regulations, holiday accrual is based on the actual hours worked, meaning that for times when part-year workers are not working they are not accruing holiday, so they are unable to take holiday for unworked periods. The reforms, therefore, appear to remove the apparent unfairness of part-year workers being able to take holidays that they have not worked for.

The New Regulations in legalising rolled-up holiday pay, give employers a much simpler way of dealing with workers who work irregular hours, thereby addressing the difficulty employers currently have in calculating holiday entitlement for workers who work irregular hours post the Harpur Trust Decision.

By Zahid Reza