As we enter the summer holidays and many businesses are likely seeing an increase in the number of holidays their employees are taking, we provide a timely reminder on the latest holiday pay legislation to ensure you don’t fall foul of any costly mistakes.
In January 2024, the UK government introduced a number of changes through The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023. The new regulations bring several important updates that employers need to be aware of to ensure compliance.
CALCULATION OF HOLIDAY PAY
In the UK, holiday entitlement consists of two parts:
- Four Weeks’ Leave (EU Law): Must be paid at ‘normal’ pay.
- Additional 1.6 Weeks’ Leave (UK Law): Can be paid at basic pay for most workers.
The government has clarified that ‘normal’ pay for the four-week EU entitlement must include:
- Payments linked to task performance (e.g., commission).
- Payments related to professional or personal status (e.g., length of service, seniority).
- Other payments such as regularly paid overtime.
Employers should ensure they are calculating at least the four weeks of EU leave on this basis using an average of the previous 52 weeks. Many employers choose to apply the calculation to the entire 5.6 weeks of leave for simplicity.
CARRY OVER OF LEAVE
The new regulations confirm that workers can carry forward their entire 5.6 weeks’ statutory annual leave if they are unable to take it due to family leave. For sick leave, workers can carry forward their four weeks’ EU law leave, which must be used within 18 months of the end of the holiday year in which it was accrued.
Additionally, if employers do not recognise a worker’s right to paid annual leave or fail to provide a reasonable opportunity to take it, workers can carry forward untaken holiday. Therefore, it’s essential to have systems in place for tracking leave and ensuring everyone uses their annual entitlement, and explaining clearly that holidays may be lost if they aren’t taken accordingly.
We advise you to review your current practices carefully to ensure you are compliant with the new regulations. This includes updating holiday pay calculations and understanding the new rules for carrying over leave. This will allow you to meet all your legal obligations and support your workforce effectively.
ROLLED-UP HOLIDAY PAY NOW ALLOWED FOR IRREGULAR-HOURS AND PART-YEAR WORKERS
Rolled-up holiday pay refers to paying an employee’s holiday pay at the same time as basic pay (rolling the two payments together). Previously, this was ruled unlawful by the European Court of Justice because it could discourage workers from taking time off, but changes mean it is now permitted. Many employers had continued to roll up holiday pay regardless so this change could be welcome news for some.
It’s important to remember that this doesn’t mean workers can work 52 weeks of the year, without taking any holidays, it means leave taken is technically unpaid as holiday pay has been factored in / rolled-up with other pay.
This change is not mandatory and employers that do not want to use rolled-up holiday pay for irregular hours and part-year workers can continue using the existing 52-week reference period to calculate holiday pay.
The new rules apply to leave years which commenced on, or will commence after, 1 April 2024. It is therefore essential to review your practices now and prevent any errors occurring, particularly over the busy summer period.
GET IN TOUCH
The above highlights how important it is for employers to calculate their employees’ holiday entitlement and pay correctly, the process can often be complex and time consuming. If you would like any further information or wish to discuss payroll for your business in further detail, please get in touch with a member of our payroll team by emailing enquiries@pmm.co.uk or call 01254 679131.
