Holiday Pay – Everything You Need to Know

Author: Caroline Banwell, HR & Legal Consultant

Last year saw several changes to holiday pay, culminating in the Supreme Court case of Harpur v Brazel. This landmark case saw ‘rolled-up’ holiday pay outlawed even though it had arguably been the best way to deliver it to those working irregular hours. Paying zero-hours workers and others on similar terms 12.07% of their earnings as rolled-up holiday pay was, in theory at least, no longer allowed. Overnight, advisers became lost in advising employers to calculate holiday pay for zero hours and other similar workers sensibly.

2024 Reversal: A New Dawn for Holiday Pay
Fortunately, the beginning of 2024 has seen the reversal of this decision, although for many businesses this change won’t take effect immediately. The new regulations will only apply where the employer’s holiday year begins on or after April 1, 2024. For the many employers whose holiday year starts on January 1, this will mean rolled-up holiday pay can only lawfully be paid from January 1, 2025. Between now and then, paid holiday must be taken by workers or paid in lieu at the end of a period of work. Employers will thus become further vexed when grappling with the holiday pay calculation.

New Regulations: Clarity and Relief
The new regulations governing holiday pay now specifically allow rolled-up holiday pay for part-year or irregular-hours workers as long as the holiday pay is:
• Calculated as 12.07% of the worker’s pay over the last 52 weeks
• Paid with their usual pay
• Set out on the payslip.
Employers will breathe a sigh of relief at this more straightforward holiday pay calculation process.

Impact on Regular Hours Workers
The new regulations will also impact the calculation of holiday pay for workers working regular hours. Previous court decisions dictated that holiday pay should not only be calculated on basic salary. In addition, commission, regular overtime and performance bonuses needed to be factored into the calculation. This remains the case, but the new rules cast doubt over whether one-off bonuses (such as Christmas bonuses or one-off commission payments) and car allowances should also factor in the calculation of at least the first four weeks of holiday pay. If you want to err on the side of caution, calculate holiday pay by including all payments made to the worker over the last 52 weeks.

New Rules for Carrying Forward Holiday
We also have some helpful new rules on this. From now on, anyone entitled to holiday will be permitted to carry forward untaken holiday if:
• They could not take holiday due to sickness or statutory leave such as maternity leave.
• They were not given a reasonable opportunity to take holiday or were not encouraged to take it.
• They were not informed of the ‘use it or lose it’ policy.
And remember, those on maternity leave should be credited with accrued leave for untaken bank holiday days, just as now! Many employers are surprised by this.

Need Assistance?
If you would like help amending your employment contracts or policies to take account of the holiday pay changes or with your holiday pay calculations, please get in touch with us. We can’t prescribe headache pills, but we can take the headache away!