Holiday entitlement and holiday pay calculations irregular hour workers and part year workers have been simplified and we have set out the headlines of the reforms below.
Defining irregular hours workers and part-year workers
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 in that year is, under the terms of their contract, wholly or mostly variable. A pay period is how frequently a worker gets paid, for example, weekly or monthly.
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 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.
Calculating statutory holiday entitlement for irregular hours and part-year workers
All full-time workers are entitled to a minimum 5.6 week holiday under the Working Time Regulations. This minimum is pro-rated for part-time workers. Payment should be made at the time holiday is taken unless paid in lieu for accrued holiday at point of termination.
For leave years beginning on or after 1 April 2024, there is an 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 as 12.07% of actual hours worked in a pay period. The 12.07% figure is based on the fact that all workers are entitled to 5.6 weeks’ leave. This means that a worker’s total working weeks in a year is 46.4 (52 weeks in a year minus 5.6 weeks of leave). 12.07% of 46.4 is 5.6.
How to calculate accrued holiday during maternity or family related leave, or sickness absence
Whether a worker can take maternity or family related leave depends on their employment status and their statutory rights to leave. During these absences from work, a worker would continue to accrue leave. The calculation method follows the same principle as the accrual method for statutory holiday entitlement. However, as the accrual method relies on the employer knowing how many hours someone has worked, this method introduces a 52-week relevant period so employers can look back and work out an average of hours worked across that period, to inform them what period of leave should be deemed to have accrued during the period of absence.
The relevant period would run from the day before the worker starts their maternity or family related leave or time off sick, going back for 52 weeks. When calculating the average weekly hours worked, employers should not include weeks where the worker is on maternity or family related leave or off sick for any amount of time. However, weeks not worked for any other reason should be included. If the worker has not worked for the employer for 52 weeks, the relevant period is shortened to the number of weeks the worker worked for the employer.
Rates of holiday pay where 4 weeks is paid at normal rate of pay and 1.6 weeks paid at basic rate of pay
Basic pay should reflect the worker’s wages (minus bonuses, commission and other additional payments) that they would have earned had they been working. This means that if a worker works shifts each week which are at a premium rate (due to the timings of the shifts, for example), then this should be reflected in the worker’s basic pay when they are on holiday.
The regulations do not state which entitlement (4 weeks or 1.6 weeks) should be used first. Many employers choose not to distinguish between the two pots of leave, and to pay the entire 5.6 weeks at the ‘normal’ rate of pay. If an employer wishes to pay different holiday rates for different periods of leave, then they should consider explaining this to the worker, for example in the worker’s contract or staff handbook.
What is considered ‘normal remuneration’ in relation to the 4 weeks of statutory annual leave?
The following payments must be included in the 4 weeks of normal holiday pay:
- Payments intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out.
- Payments relating to professional or personal status relating to length of service, seniority or professional qualifications.
- Other payments which have been regularly paid to a worker in the 52 weeks preceding the calculation date.
- Whether bonuses are included in normal holiday pay depends on the nature of the bonus.
Rolled-up holiday pay as an alternative method to calculate holiday pay for irregular hours workers and part-year workers
Employers can use rolled-up holiday pay as an additional method for calculating holiday pay for irregular hour and part-year workers only, for leave years beginning on or after 1 April 2024. 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.
Employers using rolled-up holiday pay should calculate it based on a worker’s total pay in a pay period and check their workers’ contract in case this amounts to a variation of contract. Employers should also tell their workers if they intend to start using rolled-up holiday pay and for this payment to be clearly marked as a separate item on each payslip.
If annual leave is carried over where a worker is paid using rolled-up holiday pay, the leave will already have been paid at the time the work was done.
Get in contact with an employment lawyer at Rowberry Morris
If you would like advice or need further guidance on this or any employment issue, please contact the Employment Team at Rowberry Morris by phone on 01189812992 or email at employment@rowberrymorris.co.uk, or at rowberrymorris.co.uk/services/employment-law