The comeback of rolled-up holiday pay and even more changes to holiday pay

14 November 2023

Draft legislation has been published and new regulations are set to come into force as of 01 January 2024.

The Government has confirmed it is going to allow rolled-up holiday pay for irregular hours workers and part-year workers only; and that holiday entitlement is to be in proportion to the time a worker has worked.

Employees will remain entitled to four weeks leave, (the calculation of pay for which must include; commission payments and overtime which the worker has regularly been paid over 52 weeks preceding the leave) and 1.6 weeks’ leave (which can be paid at basic pay only for most workers).

The draft regulations allow rolled up holiday pay, in certain circumstances, despite case law from the European Court of Justice setting out that the system was unlawful due to it discouraging workers from taking annual leave. However, for workers who have irregular hours or only work part of the year; rolled-up holiday pay will be deemed acceptable so long as;

1. the pay is calculated at 12.07% of all pay for work done;
2. the 12.07% is paid at the same time as pay for the work done and;
3. the holiday pay is itemised separately on the workers’ payslip.

There are also a number of scenarios that have been identified to enable workers to carry forward four weeks leave – if the employer does not;

1. recognise the workers right to be paid annual leave;
2. give the worker a reasonable opportunity to take leave;
3. encourage the worker to take leave;
4. warn the worker of the risk of losing their leave entitlement at the end of the leave year, and;
5. if the worker cannot take leave because of sickness absence (however, in the event of sickness absence preventing a worker from taking leave, any leave carried over must be used within 18 months of the end of the holiday leave year in which the entitlement originally arose).

In the event a worker is prevented from taking their leave due to being on family related leave, they will be entitled to carry forward their whole statutory annual leave entitlement (5.6 weeks).

Further, proposals to correct the issues highlighted in the Supreme Court’s decision in Harpur v Brazel; where it was observed that the rules do not allow annual leave to be lawfully pro-rated to reflect hours actually worked, have been made. An accrual system has been announced, and from 01 April 2024, part-year and irregular hours workers will accrue annual leave entitlement on the last day of each pay period at the rate of 12.07% of the number of hours that they have worked during that pay period (subject to a 28-day maximum per leave year).

The accrual system would see part-year and irregular hours workers accruing holiday entitlement as they work, instead of being entitled to a whole year’s leave at the start of a leave year.

If you require advice on irregular or part-year workers, assistance with rolled-up or carried forward holiday entitlement or anything else holiday related; please do note hesitate to contact our employment team on 01254 828300.