Update on Changes to Holiday Pay and Working Time Regulations

The UK Government, following two extensive consultations, has announced pivotal amendments to both holiday pay and the Working Time Regulations, specifically tailored for part-year and irregular workers. Set to be effective from April 2024, these changes are critical for maintaining compliance and providing accurate guidance. Here’s an in-depth look at the key updates:

Revised Holiday Accrual Method in Light of Harpur Trust v Brazel:

The new legislation introduces a revised method for calculating holiday accrual for part-year and irregular workers. This change is a direct response to the ambiguity created by the Supreme Court’s decision in Harpur Trust v Brazel. In that case, it was determined that part-year workers were accruing more holiday entitlement than part-time workers, despite working the same number of hours annually. To address this imbalance, the new regulations allow employers to calculate holiday entitlement for part-year and irregular workers as 12.07% of hours worked in a given pay period. It’s important to note that this change does not alter the calculation of holiday entitlement for regular hours workers, maintaining a fair and balanced approach across different employment types.

Precise Definitions for Worker Categories:

The legislation provides specific definitions for ‘part-year’ and ‘irregular’ workers, ensuring clarity in applying these new rules.

Part-Year: “a worker is a part-year worker, in relation to a leave year, if, under the terms of their contract, they are required to work only part of that year and there are periods within that year (during the term of the contract) of at least a week which they are not required to work and for which they are not paid.”

Irregular: “a worker is an irregular hours worker, in relation to a leave year, 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.”

Transition to Hourly Calculation for Annual Leave:

The shift to an hourly basis for calculating annual leave replaces the previous weekly calculation, enabling a more precise and manageable approach for these worker categories.

Authorisation of ‘Rolled-Up’ Holiday Pay:

The practice of including holiday pay in regular wages, known as ‘rolled-up’ holiday pay, will be legally permissible for part-year and irregular workers, introducing greater flexibility in pay arrangements.

Relaxation of Record-Keeping Standards:

The new regulations ease the requirement for detailed records of workers’ working time. Employers, however, must still demonstrate compliance with the Working Time Regulations.

Clarification on Holiday Pay Calculations:

The legislation now clearly outlines the elements to be considered in calculating a ‘week’s pay’ for holiday pay purposes, incorporating factors such as work-related commissions, status-related payments, and regular overtime.

The government’s proposed changes to holiday pay and leave entitlement calculations is good news for businesses who engage with part-year and irregular workers. The introduction of a simplified accrual method, coupled with the allowance for ‘rolled-up’ holiday pay for these worker categories, is anticipated to streamline the process substantially. Overall, these changes should lead to a smoother, more efficient approach in managing holiday entitlements, benefiting both employers and employees alike.

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