Part 2: New holiday rules for irregular-hours and part-year workers
The Government has announced changes to the calculation of holiday pay, due to come into force for England, Wales and Scotland on 1 January 2024 under the draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023
New holiday rules for irregular-hours and part-year workers (zero hour / variable hour or term time only contracts)
The Government is (re)introducing a new holiday regime for irregular hours and part-year workers.
From 1 April 2024, both part-year workers 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 worked during that pay period. This is subject to a maximum of 28 days per year. There are also special rules dealing with accrual where a part-year or irregular hours worker is on sick leave, maternity or other statutory leave.
The draft Regulations also contain a definition of an irregular hours and part-year worker:
- A person will be an irregular hours worker if the number of paid hours that they will work in each pay period is, under the terms of their contract, wholly or mostly variable.
- A person will be a part-year worker if they are required to work only part of the 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. Periods of sick leave or statutory leave (such as maternity leave) are ignored.
Rolled up holiday pay
Rolled up holiday is where an employer pays an additional amount in respect of holiday pay in each payslip (and then the worker receives no pay when they take their holiday).
This practice is not permitted under EU law due to concerns that it disincentivises workers from taking holiday (as they can earn more money by staying at work).
The draft regulations will allow employers the option of rolled-up holiday pay for holiday years from 1 April 2024, as long as:
- the worker counts as an irregular hours or part-year worker (see above).
- holiday pay is calculated as a 12.07% uplift to the worker’s total pay for work done.
- the extra 12.07% is paid at the same time as pay for the work done; and
- the holiday pay is itemised separately on the payslip.
Rolled up holiday pay does not mean that workers can work 52 weeks of the year, without taking any holidays. The onus is still on employers to make sure they have at least 28 days off.
What employers need to do:
- Analyse your irregular hours and part-year workers. Who will be caught by the new definition of irregular hours or part-year workers?
- If you want to pay rolled-up holiday pay for these workers, changes to their contracts may be required (if this practice is new to them).
- How will you ensure that these workers take the required minimum of 28 days per year unpaid holiday? Not a problem if the worker truly is a seasonal worker or works infrequent hours, but if they are likely to work throughout the year then this needs to be considered.