In November 2023 the Government announced significant changes to the current holiday pay rules, together with draft legislation to implement the changes.

The changes to UK holiday pay rules in 2024 mean that some changes came into effect from 1 January 2024 and others are due take effect for holiday years from 1 April 2024 onwards. Some of these changes may create challenges and questions for employers.

In this blog, we look at the main changes in a little more detail.

Changes from 1 January 2024

The headline changes that came into effect from 1 January 2024 are as follows:

• Changes to the carryover of leave including leave affected by COVID-19.
• Change to the definition of irregular hours workers and part-year workers.
• Changes to the definition of a week’s pay for holiday pay calculations.

Changes from 1 April 2024 onward

The headline changes which will take effect for holiday years commencing from 1 April 2024 onwards are as follows:

• Reintroduction of rolled-up holiday pay for irregular hours and part-year workers.
• Reintroduction of the 12.07% of hours worked calculation method for irregular hours and part-year workers.
• Changes to the definition of a week’s pay for holiday pay calculations.
• Changes to carry over of holiday rules.

Carryover of leave

From 1 January 2024, individuals are now entitled to carry over up to 28 days’ leave into the following leave year if one of the following conditions apply.

• the individual has been on sick leave (as long as it is taken within 18 months from the end of the leave year in which it was accrued);
• the individual has been on maternity or other family related leave;
• the employer has refused to pay the individual their paid leave entitlement;
• the employer has not given the individual a reasonable opportunity to take holiday;
• the employer has failed to inform the worker that untaken holiday at the end of the leave year will be lost.

Leave affected by COVID-19

As of 1 January 2024, individuals can no longer accrue COVID carryover leave, meaning any leave that individuals couldn’t take because of the effects of coronavirus can’t be carried over into the next 2 years. However, employers should note that COVID carryover leave accrued by individuals prior to 1 January 2024, must be used before 31 March 2024.

Definition of an irregular hour worker and a part-year worker

A definition for irregular hours workers and part-year workers has been set out so employers understand which workers the accrual method for entitlement and the introduction of rolled up holiday pay apply to.

How a worker is classified will depend on their working arrangements. Ensuring your workers’ contracts have clear working patterns specified becomes even more important.

Irregular hours worker

In relation to a leave year, a worker is an irregular hours worker if the number of paid hours that they will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable.

Note: a pay period is how frequently a worker gets paid, for example, monthly.

Part-year worker

In relation to a leave year, a worker is a part-year worker if, under the terms of their contract, they are required to work only part of that 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. This includes part-year workers who may have fixed hours.

Rolled-up holiday pay

For leave years beginning on or after 1 April 2024, employers will have the option to pay irregular-hours or part-year workers holiday pay that is rolled-up with their normal pay. This allows employers to pay an additional amount in every payslip to cover a worker’s holiday pay, instead of just paying for holiday when a worker takes leave.

Calculating statutory holiday entitlement for irregular hours and part-year workers

There is now published government guidance on calculating holiday leave entitlement for these workers. Employers can also use a new method for calculating holiday entitlement for irregular-hours workers and part-year workers on sick leave or statutory leave.

For leave years beginning on or after 1 April 2024, holiday entitlement for irregular-hours and part-year workers will be calculated in hours. This holiday entitlement will accrue at the rate of 12.07% of the hours worked in a pay period. This figure is based on the 5.6 weeks statutory minimum holiday entitlement.

A 52 week reference period will be used to calculate holiday entitlement for individuals on sick leave or statutory leave. Employers can work out average of hours worked across that period, to decide what period of leave has been accrued during the period of absence.

Leave entitlement when leaving a job part-way through a leave year

When an individual leaves a job part-way through a leave year, the employer should calculate if the worker has received the statutory minimum holiday entitlement that they are entitled to. Any shortfall found should be paid in lieu of untaken leave.

Whilst this years’ changes to holiday pay rules give employers more clarification on many points, it may also cause some confusion initially for business owners. The government has issued more detailed guidance on their own website, so for further clarification on any of the points above visit gov.uk holiday pay reforms website pages.

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