How can employers comply with rolled-up holiday pay changes?

Rolled Up Holiday Pay

In 2025, there are several crucial updates to UK employment law are on the horizon.  Among these, the implementation of rolled up holiday pay is expected to have a significant impact on both employers and employees.  This article will delve into the nuances of rolled up holiday pay and best practices for employers to comply with this legal requirement.  It will also highlight the impending financial changes to employment law scheduled for April 2025.

What Is Rolled Up Holiday Pay?

Rolled up holiday pay refers to the practice where employers incorporate the value of holiday entitlement into a worker’s hourly or daily pay, rather than paying it separately when the holiday is taken.  This approach can be particularly useful for businesses that engage workers on temporary or zero hour contracts where it might be administratively burdensome to calculate and pay for holidays separately.

However, the use of rolled up holiday pay has been subject to legal scrutiny over recent years.  Employers need to be cautious and ensure that they comply with both the letter and spirit of employment law to avoid costly litigation.

How to Calculate Rolled Up Holiday Pay

Under the Working Time Regulations 1998 (WTR), workers in the UK are entitled to 5.6 weeks of paid holiday annually.  This is equivalent to 28 days for full time workers including Bank Holidays.  For employees whose pay is variable, holiday pay must reflect their average earnings over the previous 12 week period.  If rolled up holiday pay is used, the calculation should ensure that employees receive a sufficient holiday entitlement, even if they do not take time off or are employed on non-standard contracts.

Employers should ensure that the terms regarding rolled up holiday pay are clearly outlined in the employee’s contract to avoid ambiguity and potential disputes.

Compliance Risks and Best Practices for Employers

While rolled up holiday pay is permitted in certain circumstances, employers must proceed with caution.  It can only be used for workers who are irregular hours workers or part year workers as the law has not changed for regular hours workers.  Under the new regulations, the definition of an irregular hour’s worker is someone whose contracted hours are wholly or mostly variable.

To calculate the amount of holiday pay due to your irregular hours workers or part year workers will require a percentage.  There are 52 weeks in a year less 5.6 weeks statutory holiday (for full time equivalent workers) which gives 46.4 working weeks.  Then we divide 5.6 weeks by 46.4 weeks to get 12.07%  Therefore, if you pay someone an additional 12.07% of their pay during their working weeks this equates to 5.6 weeks’ holiday pay.

Best practices for employers include:

• Maintain transparency: Ensure the employee understands their entitlement to statutory holiday pay, especially when rolled up holiday pay is in use.  Communicating the details clearly in the employment contract is crucial.
• Track hours worked: Employers must maintain accurate records of hours worked and holiday pay calculations to demonstrate compliance.
• Review contracts regularly: Ensure contracts are regularly reviewed to stay in line with changing regulations and case law.

The calculation of rolled up holiday pay should be done with care, ensuring that workers’ rights to paid leave are respected.

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This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek advice specific to your own circumstances. Fraser Dawbarns LLP is always happy to provide such advice.