New rules for holiday pay
What do the Government’s new Employment Rights Regulations mean for employers calculating annual leave allowances? Rachel Levine explains.
Every independent healthcare provider who has employees or workers must be aware of the change to how holiday pay is calculated.
New regulations relating to holiday pay, and setting out changes to the Working Time Regulations, came into force on 1 January 2024. They contain some significant changes and aim to simplify or consolidate some of the processes for certain categories of workers.
The Government has chosen to maintain many of the EU rules on holiday already in force, with a few changes and additions.
It is important that all employers are aware of the changes so that they can identify whether any of their employees or workers are likely to be affected.
1. When do the rules apply?
Although the regulations came into effect on 1 January 2024, they only begin to apply for an employer’s leave year beginning on or after 1 April 2024.
This means that for any independent healthcare provider business whose annual leave year runs from 1 January to 31 December, for example, the new rules will apply from 1 January 2025.
2. ‘Irregular hours’ and ‘part-year’ workers
Before reviewing the changes themselves, it is important to understand some of the categories of workers that these regulations apply to. For instance, ‘irregular hours’ and ‘part-year’ workers are defined in the regulations.
Irregular hours workers: These are workers where the number of paid hours that they work in each pay period is, under the terms of their contract, ‘wholly or mostly variable’.
This covers workers with an irregular number of hours, not workers who have irregular working patterns but a fixed number of hours. It might cover positions such as healthcare bank workers or specialist employees retained to meet irregular patient needs, with no consistent or guaranteed contractual hours.
Part-year workers: These are workers who are required to work only part of the year, with periods of at least a week where they are not required to work and for which they are not paid, such as seasonal workers covering private vaccination clinics or where the hours are adjusted to reflect reduced patient demand during certain months.
3. What are the main changes?
Holiday accrual for irregular hours and part-time workers
The way in which irregular hours and part-year workers accrue annual leave is changing as a result of the new regulations.
This follows a Supreme Court ruling (Harpur Trust v Brazel), which caused significant difficulties for employers in calculating the holiday pay for these workers.
Under the new regulations, these workers will accrue annual leave entitlement for each pay period at the rate of 12.07% of the number of hours that they have worked during that pay period.
A ‘pay period’ is the period for which the worker is paid, such as monthly, weekly or fortnightly.
This means workers accruing holiday in this way will now build up holiday entitlement as they work, rather than being entitled to a full 5.6 weeks at the start of each holiday year regardless of what hours they work.
There is a maximum limit of accrued holiday in this way of 28 days per year, unless a higher limit is contractually agreed.
It will also be open to employers to provide these workers with more holiday than they have technically accrued, as long as – again – this is documented contractually.
Although there remains some ambiguity in relation to how or when these workers should be taking the accrued holiday – considering their types of contract – this provision is likely to be helpful for employers, particularly those who engage these types of workers on a large scale.
Rolled-up holiday pay
Rolled-up holiday pay is where an employer rolls up a payment of basic pay and holiday pay into one consolidated payment.
Although previously commonly used, this practice was ruled unlawful several years ago by the European Court of Justice in a case called Robinson-Steele, where the court commented that the use of the practice would risk discouraging workers to take leave.
These new regulations have re-introduced the provision of rolled-up holiday pay for certain workers, provided that:
- The worker is a part-year or irregular hours worker;
- Holiday pay is calculated at 12.07% of all pay for work done;
- 12.07% is paid at the same time as the pay for the work done;
- The holiday pay is itemised separately on the worker’s payslip.
It will not be compulsory to pay holiday in this way, but this re-introduction will be of benefit to any independent healthcare business which engages irregular hours workers due to the difficulties in calculating holiday through any other method.
Assuming that the worker is eligible to receive it, using rolled-up holiday pay allows employers to simply add a supplement onto an hourly rate of pay for work in order to satisfy their legal obligations – provided that the supplement is appropriately itemised on the payslip.
It should be noted, however, that there is still a responsibility on businesses to ensure that workers take their full statutory holiday (5.6 weeks).
This obligation remains regardless of whether that holiday time is paid as part of normal annual leave or has been paid via rolled-up holiday pay.
If using rolled-up holiday pay, it means that the worker’s remaining holiday entitlement over and above what they have been paid via rolled-up holiday pay will be unpaid.
Carrying leave forward
Under the new regulations, workers will continue to automatically be able to carry over four weeks of statutory leave, if the employer has not:
- Recognised their right to paid annual leave;
- Given them a reasonable opportunity to take leave or encourage them to do so;
- Warned them of the risks of losing their annual leave entitlement at the end of the holiday year.
This is an important provision for employers to be aware of, as it highlights the risk of misclassifying someone as self-employed.
Should someone be wrongly classified as self-employed when, in fact, they satisfy the conditions of worker status, they will be entitled to statutory holiday, and any employer, relying on their self-employed status, may fall foul of this provision.
Carried-over holiday under this provision cannot be carried forward beyond the end of the first full leave year where the employer has acknowledged the rights.
Other provisions for carrying over leave are also included in the regulations:
- Where workers are unable to take annual leave due to family leave, they will be entitled to carry forward the full 5.6 weeks of statutory leave entitlement.
- Where workers are unable to take annual leave due to being on sick leave, they will be entitled to carry forward the four weeks of EU statutory leave; however, the carried-over leave must be used within 18 months of the end of the holiday year in which the entitlement arose.
First published in the February edition of Independent Practitioner Today.