Navigating the New Holiday Pay Calculation Rules

Legal Entitlement and Calculation

All full-year workers, with the exception of the genuinely self-employed, are entitled to 5.6 weeks of paid statutory holiday per year. Four weeks of this entitlement must be paid at the worker’s ‘normal’ rate of pay, including regular payments like overtime, bonuses, and commissions, as specified by Regulation 13 of the Working Time Regulations. The remaining 1.6 weeks can be paid at the ‘basic’ rate of pay, that is, the worker’s basic remuneration (as specified by Regulation 13A).

Holiday pay is designed to ensure that workers do not suffer financially when taking time off. For those with regular hours and fixed pay, the holiday pay should mirror what they would have earned if they were at work. From 1^st January 2024, the regulations now specify that certain payments, such as commission payments and those related to professional or personal status, must be included in the calculation of the 4 weeks of normal holiday pay.

Irregular Hours and Part-Year Workers

For leave years starting on or after 1^st April 2024, part-year and irregular hours workers must have their statutory holiday entitlement calculated based on actual hours worked, using the 12.07% accrual method. Alternatively, employers can opt for rolled-up holiday pay, a method applicable exclusively to irregular hour and part-year workers.

Rolled-up Holiday Pay

Rolled-up holiday pay allows employers to include an additional amount with every payslip to cover a worker’s holiday pay, instead of paying it when the worker takes annual leave. The calculation involves 12.07% of the worker’s total pay, representing the proportion of statutory annual leave in relation to the working weeks of each year. If employers choose this method, the entire amount of leave for irregular hours and part-year workers is paid at the ‘normal’ rate of pay.

Considerations for Employers

Employers intending to implement rolled-up holiday pay should review workers’ contracts to ensure compliance and avoid unintentional variations. For those opting not to use rolled-up holiday pay, the existing 52-week reference period method can be employed to calculate holiday pay, considering the worker’s previous 52 paid weeks.

Payment in Lieu

If irregular hour or part-year workers do not utilise their accrued holiday entitlement upon leaving employment, they are entitled to a ‘payment in lieu.’ Employers should calculate this by determining the remaining holiday entitlement and computing the holiday pay for the period. Deductions should be made for any holiday taken during the employment period.

Conclusion

As the new Holiday Pay Calculation rules come into effect, employers must stay informed and adapt their practices accordingly. Compliance with these regulations not only safeguards against legal issues but also fosters a fair and transparent work environment. By understanding the nuances of holiday pay entitlement and calculation, employers can ensure that their workforce is compensated appropriately for their time away from work.

If you have any questions or wish to discuss holiday pay for your business, please contact the Employment Department.