How to navigate the new holiday pay legislation

HR is an ever-changing sector, with new legislations and regulations regularly coming into effect that change the way we work. One such change is the new holiday pay legislation that took effect on 1st January 2024. This set of legislation changes is part of a ‘sunsetting’ of EU regulations post-Brexit. 

These changes target specific parts of the workforce, in particular, ‘irregular hours workers’. They also alter how holidays are carried over into new holiday years. So, in this blog post, we unpack these new changes, as well as what they mean for both employees and HR professionals.

Who is classified as an ‘irregular hours’ or ‘part-year’ worker?

The new regulations mention irregular hours and part-year workers. Irregular hours workers are employees that have variation in the amount of hours they work in each pay period. For example, if you work in hospitality and have different shift patterns each week, you would be classified as having irregular hours.

Part-year workers are, as the name suggests, employees who have periods throughout the year where they don’t work and aren’t paid. These periods must last over a week to qualify. Seasonal job roles – like in tourism or farming – are likely to fall under this category. 

Changes in holiday accrual

The new regulations usher in changes in the way holidays are calculated for these workers if their leave year starts on or after 1st April 2024. For each pay period, leave will be accrued at 12.07% of the time worked. For example, if an employee works 20 hours in one pay period, they will accrue 2 hours of leave when rounded correctly. 

However, for employees with a long period of absence, holiday accrual must be calculated using a 52-week reference period. This includes those on statutory leave such as maternity leave.

Carrying over holidays

Another change to holiday accrual is an employee’s right to carry over holidays if they were unable to take them due to statutory leave. The rule also applies to those who missed holidays due to sick leave, as long as they take them within 18 months of the holiday year. 

The new rules also state that employees are entitled to carry over 4 weeks of leave per year under the following circumstances:

  • Their employer denied their worker status.
  • They weren’t given reasonable opportunities to take leave.
  • Their employer failed to inform them that untaken holidays would be lost.

Changes to holiday pay

Rolled-up holiday pay

‘Rolling up’ is the practice of spreading out an employee’s holiday pay across the year. An employer would add it to an employee’s payslip in parts, rather than in a lump sum when the holiday is taken. Under new regulations, this method which was deemed unlawful under EU law, is now allowed. 

It’s important to note that any changes to an employee’s holiday pay – including when it is paid – must be made after notifying them. This is also the case for agencies, where it must be included in their Key Information Document.

Inclusion of bonuses and commission

Another update to holiday pay calculations included in this legislation is the definition of a week’s pay. Under new regulations, holiday pay should include the following. Firstly, any commission that would be earned from regular tasks. It should also include any payments related to an employee’s professional or personal status. This could include bonuses for seniority or length of service. Finally, any overtime the employee would have earned over the 52-week reference period should also be added.  

Preparing for legislative changes

This legislation has already been implemented, however, there are things you can do as an HR professional to prepare for regulation changes.

Review payroll systems

It’s important to be sure that your payroll software can accommodate these changes. This might involve running health checks and surveys on your current system to check for any pain points or challenges. 

Communicate changes

The key to navigating legislative changes successfully is communication. Everyone affected by these changes – including HR and payroll staff and employees – should understand their implications. Where needed, it might also be helpful to provide training to HR staff. This practice also fosters a culture of continuous learning and prepares your team for future changes.

In a nutshell, this set of legislation marks a change in the way former EU law influences employment regulations in the UK. It also aims to create clearer guidelines for workers under irregular working arrangements. The payroll sector, much like the rest of HR, faces regular legislation changes. However, with the right preparation, flexibility and communication, you can go into 2024 knowing you are providing employees with the fairness these regulations promote.

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Written by : Laura Lee

Laura’s role as Head of Marketing sees her continually looking for new opportunities to tell the world how great Phase 3 is.

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