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Understanding Holiday Pay: Key Updates for Recruitment Agencies

If you manage PAYE temporary workers or are starting a temp desk, understanding holiday pay is crucial. What are the key changes in 2024?

Marie
01/05/2024

If you manage PAYE temporary workers or are considering starting a temp desk, understanding the nuances of holiday pay is crucial. It’s essential not just for compliance, but also to ensure you maintain your profit margin on temporary work assignments. The legal landscape surrounding holiday pay has undergone significant changes with the recent UK Holiday Pay and Entitlement Reforms of 2024 and the landmark Harpur Trust v Brazel case.

Harpur Trust v Brazel: A Case That Redefined Holiday Pay

The recent adjustments in the method for calculating holiday accrual for part-year and irregular workers stem from the Harpur Trust v Brazel case. This case shed light on a significant issue: part-year workers were gaining more holiday entitlement than part-time workers, even though they worked equivalent annual hours. In response, the new regulations now determine holiday entitlement for these workers at a rate of 12.07% of hours worked during each pay period. Importantly, these changes are specific to part-year and irregular workers, preserving the existing entitlement calculations for regular hours workers and ensuring consistency and fairness in employment practices.

Key Changes in 2024

The UK Government introduced significant changes to The Working Time Regulations 1998, effective from January 1, 2024, with specific updates for holiday years starting on or after April 1, 2024. These changes include:

  • A New Definition of a Week’s Pay: This clarifies that payments intrinsically linked to the performance of tasks, as well as payments for professional status and regularly paid overtime, should be included in calculating holiday pay.
  • Updated Categories for Workers: This clear definition of irregular hours workers, regular hour workers and part-year workers aids in accurate holiday pay calculations.
  • Rolled-up Holiday Pay: This allows for holiday pay to be calculated and paid as an additional amount with every payslip for irregular hours and part-year workers, simplifying administration for employers.
  • Modifying the Carryover of Unused Holidays: The new rules permit workers to carry over up to 28 days of unused holiday, when they are unable to take their holiday due to sickness, maternity, or other family-related leave, or if the employer fails to provide a reasonable opportunity to take the holiday. This unused holiday must be used within 18 months from the end of the leave year in which it accrued.

Holiday Pay Calculation

The process of calculating holiday pay varies based on the worker’s pattern:

  • Fixed Hours: For those whose hours don’t change, holiday pay equals their usual pay.
  • Irregular Hours: For those with variable hours, holiday pay accrual should be calculated at a rate of 12.07% of the hours worked if the temporary worker is entitled to the standard statutory holiday of 5.6 weeks (28 days)
  • Part-Year Workers: Those who only work part of the year, such as seasonal employees, will also have their holiday pay accrued at the same 12.07% rate.

Ensuring compliance

To ensure compliance with the new holiday pay regulations, recruitment agencies should take several proactive steps.

  • Revise Contracts and Policies: Carefully review and update employment contracts and company HR policies to ensure they are compliant with the new rules.
  • Worker Definitions: Ensure your team understand the definitions of irregular hours and part-year workers and which workers meet these definitions.
  • Calculation of normal pay: Clearly outline in your policies what you consider to be normal pay.
  • Update Payroll Systems: Modify your payroll software to include all elements of pay such as bonuses, commissions, and regular overtime when calculating holiday pay.
  • Communication: Communicate with your temporary workers about their holiday entitlement and encourage them to use it.
  • Understand your margins: Holiday pay is an additional cost on top of the charge rate you agree with your temporary workers. Ensure you understand the profit margin of each assignment. Feel free to download our hourly margin calculator here.

Closing Thoughts

These updates underscore the need for recruitment agencies to stay informed and adapt quickly to changes in employment law. By correctly implementing these holiday pay calculations, agencies not only ensure compliance but also protect the interests and satisfaction of their temporary workforce.

If you have any questions, check out our blog ‘Understanding Holiday Pay: FAQs‘, or alternatively to get in touch with one of our experts, using the contact information below.


Contact Us:

Contact Recruitment Accountants today for support in adapting to these changes and staying compliant.

You can email us at hello@recruitmentaccountants.com or call us at 0845 606 9632 to speak with one of our experts.

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