What you need to do now … and how to do it
At the end of last year, the government published guidance about calculating holiday entitlement for part-year and variable-hours workers. As the changes come into effect for those of you with holiday years starting on or after 1 April 2024, we thought it would be useful to share some detailed and practical information to help you prepare.
What are the changes to holiday pay entitlement?
The changes simplify holiday pay and accrual calculations by allowing rolled-up holiday pay for part-year workers (for example term-time employees) and those who work irregular hours (such as zero hours contracts). There is no impact on full- or part-time salaried employees.
Holiday entitlement for casual and part-year workers will now be worked out using an accrual calculation based on the hours they have worked during each pay period. This replaces the ruling that they were entitled to 5.6 weeks’ leave, irrespective of how many hours or days they had worked.
Changes will apply to leave years starting on or after 1 April 2024, which means that if your holiday year starts on 1 January, the changes will not affect you until 1 January 2025.
What is rolled-up holiday pay?
Rolled-up holiday pay is a way of compensating workers for holiday entitlement by including holiday pay in their normal pay. (The current situation is that rolled-up pay is unlawful and holiday pay must be paid at the time the leave is taken.)
Rolled-up holiday pay can be calculated by adding on an extra 12.07% of the worker’s pay for the pay period in question. The rolled-up pay must be shown in a separate line on the payslip. As part of the worker’s contract of employment, you should also show how their pay is made up by clearly stating which elements are basic pay and which are holiday pay. When they take leave, they will not receive any additional pay.
How does this work in practice?
Let’s work through an example. Caroline is on a zero-hours contract and is paid monthly. During May and June 2024, she works the following hours:
May 2024: 80 hours@£20 per hour (£1,600)
June 2024: 0 hours
Applying rolled-up holiday pay, in May Caroline will receive £193.12 (12.07% of £1,600) and this will be itemised separately on her payslip. In June, she will not receive any rolled-up holiday pay because she hasn’t worked any hours.
At the same time, Caroline will have accrued 12.07% of her hours in May and June as holiday entitlement, so for May this would be 9.65 hours (12.07% of 80 hours) and for June she would accrue nil hours. Caroline can request to take these hours at any time during the holiday year in which they have been accrued (in line with her company’s normal leave rules). When Caroline takes her 9.65 hours’ leave, there will be no change to her monthly pay because she is being paid rolled-up holiday pay.
If Caroline takes sick leave (or any statutory leave), she will continue to accrue – and be entitled to – holiday pay. But, as it is likely there will be no actual hours of work from which to calculate the holiday pay, the previous 52 weeks’ average hours and pay (excluding any weeks she did not carry out any work) should be used.
We’re here to help
We’ll be in touch with current clients this month regarding the changes. But you don’t need to be a client for us to help you! We’re more than happy to offer advice on a case-by-case basis.If you’d like to talk through a situation, drop us an email at [email protected] or give us a call on 01449 708999.