At the start of 2024, new regulations on holiday pay and entitlement were introduced in the UK. These changes were intended to simplify how holiday pay is calculated, promote fairness, and improve transparency. These changes may cause some confusion and concerns, particularly for business owners and managers. This article provides an overview of these changes and what you need to know to ensure compliance.

What are the 2024 changes?

In November 2023, the Government published several modifications to the existing regulations governing holiday pay and annual leave entitlement, along with draft legislation outlining the implementation of these adjustments.

The key amendments, coming into effect for holiday years starting on or after April 1 2024, are:

1. The reintroduction of the 12.07% calculation method for determining holiday pay for individuals with irregular work hours and seasonal or part-year employment.
2. The reinstatement of rolled-up holiday pay for individuals with irregular work hours and those employed seasonally or part-year.
3. Modifications to the rules regarding the carryover of unused holiday days.
4. Adjustments to the definition of a week’s pay for the computation of holiday pay.

Although these changes came into force on April 1 2024, they will only apply to businesses whose leave years start from 1 April 2024 onwards. Those with, for example, January to December leave years, will not be impacted by the changes until January 2025.

What has changed?

These represent the most significant changes to holiday pay regulations in quite some time. Some aspects of these changes are more technical and are anticipated to pose new challenges and questions for employers. Given the potential complexities involved, employers must stay informed about these changes and proactively plan to implement them effectively.

Holiday entitlement v holiday pay

It is helpful first to distinguish the difference between holiday entitlement and holiday pay.

Holiday entitlement is simply the number of hours/days’ holiday entitlement an employee is entitled to take over the holiday year. The statutory minimum holiday entitlement for all employees in the UK is 5.6 weeks during each holiday year, pro-rata to the number of contracted hours an employee works. Employers may exercise discretion to increase employees holiday entitlement beyond the statutory 5.6 weeks.

Holiday pay is the rate of pay that an employee is paid when they take holiday entitlement. An employee’s holiday pay should reflect the regular sums they receive if they were working, including any overtime.

Breaking down the holiday pay changes

Reintroducing the 12.07% calculation method for determining holiday pay for individuals with irregular work hours and seasonal or part-year employment

Determining holiday pay for those working irregular hours and part-year workers presents a challenge for employers.

It is important to note that this change is not intended to be used for regular contracted workers and is only to be used for casual and irregular hours staff who don’t have minimum contracted hours.

Who are considered “irregular hours workers” and “part-year workers”?

Under the new legislation, an “irregular hours worker” is someone whose contract terms state that their hours will mostly or wholly vary during every pay period, such as workers on zero-hours contracts. Conversely, “part-year workers” have contracts that only require them to work for part of the year, with minimum periods of one week where they neither work nor are paid. A common example of this is term-time workers, who only work while schools are in session.

Calculating holiday entitlement for irregular hour workers and part-year workers

Under the new laws, the new holiday entitlement accrual method will determine an employee’s holiday entitlement based on 12.07% of the hours they worked in the previous pay period. This is the correct percentage to be used for employees who are only entitled to statutory minimum holiday entitlement.

Why 12.07%?

The reason 12.07% is used to calculate holiday entitlement is because employees are entitled to a statutory minimum holiday entitlement of 5.6 weeks, which is 12.07% of the 46.4 working weeks in a year.

In the event that full time employees are entitled to additional holiday beyond the statutory entitlement, this will also change the calculation to determine irregular and part-year workers holiday entitlement, so it is important this is taken into consideration when calculating holiday entitlement.

What now?

Here at Visionary Accountants we have a team of experts ensuring our clients stay compliant and understand the key changes. Get in touch today if you want to know more.

HMRC's full guidance can be found here holiday pay and entitlement guidance and the section numbers below refer.

These changes include:

• defining irregular hours workers and part-year workers in relation to the introduction of the holiday entitlement accrual method and rolled-up holiday pay (see section 2)
• introducing a method to calculate statutory holiday entitlement for irregular hours and part-year workers (see section 3.1)
• introducing a method to work out how much leave an irregular hour or part-year worker has accrued when they take maternity or family related leave or are off sick (see section 3.3)
• removing the Working Time (Coronavirus) (Amendment) Regulations 2020 which affect the accrual of COVID-19 carryover of leave
• maintaining the current rates of holiday pay where 4 weeks is paid at normal rate of pay and 1.6 weeks paid at basic rate of pay, whilst retaining the 2 distinct pots of leave (see section 6.1)
• defining what is considered ‘normal remuneration’ in relation to the 4 weeks of statutory annual leave (see section 6.1)
• introducing rolled-up holiday pay as an alternative method to calculate holiday pay for irregular hours workers and part-year workers (see section 6.2)

Note that the following reforms will only apply to leave years beginning on or after 1 April 2024:

• introducing a method to calculate statutory holiday entitlement for irregular hours and part-year workers (see section 3.1)
• introducing a method to work out how much leave an irregular hour or part-year worker has accrued when they take maternity or family related leave or are off sick (see section 3.3)
• introducing rolled-up holiday pay as an alternative method to calculate holiday pay for irregular hours workers and part-year workers (see section 6.2)