The Calculation of Holiday Pay, The New Regulations

On 1^st January 2024 the Government introduced new regulations relating to calculation of holiday pay.  Those regulations are to take effect from April 2024.

The Current Regime

Under the current Working Time Regulations, holiday pay is covered by Regulation 13 and Regulations 13A.  Regulation 13, for full-time employees, means that they are entitled to 20 days holiday per holiday year.  Regulations 13A is a regulation that deals with bank holidays and covers the 8 days of bank holidays.  Case law developed on how holiday pay was calculated, and whilst Regulation 13 holiday pay would include payments such a commission and regular overtime, Regulation 13A was limited to basic pay.  What holiday pay could be carried over was also a matter of case law, or what the contract of employment or a staff handbook stated.

The calculation of holiday pay for casual workers was thrown into administrative confusion following the Supreme Court case of Harpur v Brazel.  That case confirmed that it was not lawful for employers to use the excepted practice of adding 12.07% of salary when calculating a casual worker’s holiday pay. Employers had to look back over a 52-week reference period and see what the earnings were during that period to calculate holiday pay.  This led to the Government commencing consultation and resulted in the new guidelines in January 2024.

The New Regime

The new regime which takes effect from April 2024, has sought to clarify matters not only in respect of casual workers but also in respect of carrying forward holiday and calculating a week’s pay.  The new regulations make clear that when calculating a week’s pay for Regulation 13 , account needs to be taken of commission and regular overtime.  When looking at what holiday can be carried forward, account needs to be taken of an employee on maternity leave and other family friendly leave, an employee on sick leave and where an employee has been prevented from taking their holiday during a holiday year.

The new regulations also introduce the concept of irregular workers which is to cover casual staff, some agency workers, and zero-hours contract. The Regulations give an employer the choice to either keep with the current concept of calculating holiday pay by looking back over a 52-week reference period, or introducing rolled-up holiday pay whereby 12.07% of a workers’ salary would be added to their salary to take account of holiday pay.

Issues facing Employers under the New Regulations: –

1. If employers are correctly following the Harpur Judgement and are using a 52-week reference period, when can they change to rolled-up holiday pay if their holiday year commenced on 1^st January 2024? The probable answer is the 1^st January 2025 and that may be best administratively, rather than trying to change the method of calculation during a holiday year.
2. If a worker/employee’s Contract of Employment makes clear that holiday pay is calculated by reference to the 52-week period, then agreement may need to be reached with the employee to change to rolled up holiday pay.

It will therefore be sensible for all employers dealing with casual staff to review their contracts with those staff.  The Employment team will be happy to give guidance and advice, contact them on ELS@fraserdawbarns.com.

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.