Holiday pay changes

From 1 April 2024:

• Employers can calculate holiday accrual for employees with irregular hours and part-year workers, based on 12.07% of the hours worked in any pay period.
• Rolled up holiday pay will be authorised for irregular or part-year workers based on earnings in pay period.
• There will be a 52-week reference period for calculations of holiday entitlement for irregular and part-year workers on longterm sick or family leave.
• Legislation to allow for roll-over of holiday entitlement for COVID-related reasons to be revoked.
• Confirmation of the right to carry over unused holiday entitlement where holiday cannot be taken due to sickness, maternity or family related absences to be 18 months from the end of the holiday leave year in which it is accrued.
• Minimum of four weeks' holiday pay to include commission and “regular” overtime payments.

Given that a significant proportion of early years settings operate on a term time or part-time basis it’s likely that the first two points on calculated holiday accrual for staff with irregular and part-time hours will have the biggest impact.

Prior to these changes, staff holiday entitlement would reflect the number of weeks worked during the year. For example, a setting who has 38 working weeks throughout the year would calculate holiday entitlement by taking account the 38 weeks worked rather than the 46.4 weeks available in a full year – not including statutory 5.6 weeks holiday. However, from April, the full 5.6 weeks should be given to anyone with a continuous contract, regardless of how many weeks they worked in the year.

As a result, employers may be able to add an additional 12.07% of the hours worked in any pay period as the holiday entitlement accrued for that period to a pot for employees to take at another time, or to be paid as an additional amount in the pay period as holiday accrued. The 12.07% reflects the proportion of the year that is statutory holiday compared to working weeks.

A weekly paid employee working 24-hours per week would receive pay for these hours worked, and an additional 12.07% as holiday pay’. For ‘rolled-up holiday pay’ to be lawful, the pay slip for this period would need to show the breakdown of the pay as 24 hours worked pay, and three hours holiday pay. Alternatively, these three hours could be put into their holiday entitlement allowance and paid when the time is taken throughout the year.

To avoid employees being able to challenge holiday entitlement, holiday pay should be separated out on the payslip to show the holiday provision, or designated weeks paid specifically as holiday pay in accordance with their holiday entitlement.

These changes will also apply for any staff employed on a zero-hours contract, or those on a bank worker contract.

New employees and casual contracts starting after 4 April can also be subject to these changes, but there are some conditions. Following the Harper Trust case in 2022, employers may have updated contracts to reflect the full year calculation. Where this has been done, the new legislation will not override anything in the contract. Changing to allow the new method of holiday accrual or entitlement would then require a change in the employment contract, which the employees may be unlikely to agree to given they will be receiving less holiday. If you are unsure of what you can do, find a copy of the current employment contract you provide, and give the Law-Call team a call for advice.

For any new employees who will start working before the next holiday leave year, the contract will need to be carefully worded to avoid giving a contractual holiday entitlement based on the current rules that would be higher than the legal minimum in the next following leave year. For help and advice on the contractual provision for any such new starters, contact the Law-Call advice team.

Tuesday 27 February 2024, 6:30pm - 7:30pm

Join us at this FREE Connect session where Mandip Sanghera, legal advice and review centre manager at Law-Call, Alliance business manager Gary Croxon and Alliance payslip services officer Nicola Hooper will look at changes to holiday entitlement and pay rules and the impact that they have on early years settings, so you can understand whether they apply to you and more importantly, whether you can make any changes to existing contracts.

Book your free place at bit.ly/U5holidaypay.

All Alliance members can contact the team at Law-Call for legal advice. You can find their contact details in the members’ area of our website at portal.eyalliance.org.uk.