The case of Harpur Trust v Brazel prompted the government to launch a consultation around the issues of holiday pay. The government has recently confirmed that new legislation will come into force in 2024. What does this legislation say?
Rolled up holiday pay will be permissible again – for some. This refers to the practice of paying a worker their holiday pay as a defined element of their basic pay. This meant that if the worker was to take a day of annual leave they would not be paid on that day. This was previously deemed unlawful by the ECJ back in 2006 as it could discourage workers from actually taking holidays.
Nevertheless, the 12.07% method remained a popular way of implementing rolled up holiday pay for workers with variable hours or part-year working (which was the case in Harpur Trust). This involved calculating holiday pay based on 12.07% of hours worked at the end of each month or assignment. The 12.07% figure comes from the proportion that 5.6 weeks represents to the totality of the working year. This method is easy to implement and was widely used.
The government has confirmed that this will now be lawful again in limited circumstances. As of 1 April 2024, employers can roll up holiday pay for workers working irregular hours and part-year workers. The 12.07% calculation must be used, the pay must be paid as part of normal pay, and it must be detailed on the payslip. Employees and workers who work regular hours will not be able to have their holiday pay rolled up in this way.
What is an irregular hour worker? Someone whose hours in each pay period are “wholly or mostly variable”. A part-year worker is one who is only required to work for part of the year as long as there are gaps of at least one week. This could include teachers or seasonal workers.
It is also important to note that if this method is used it is the responsibility of the employer to ensure workers are taking holidays. The draft regulations state that annual leave can be carried forward if the worker has not been encouraged to take them.
From 1 April 2024 irregular hour and part year workers will accrue their holiday entitlement using the 12.07% method. This method will be used to accrue leave up to a maximum of 28 days. This new provision is designed to correct errors in the current system as pointed out by the court in Harpur Trust. This means that holidays will accurately reflect the hours actually worked.
While these changes do make these rules clearer, some questions remain: how will this leave actually be taken? Can staff only take leave as it has been accrued? Can staff take more leave than what has been accrued? These questions remain down to the employer to answer.
This development is welcome news to employers who have been struggling with how to get to grips with paying holiday pay accurately. These changes will provide some much-needed clarity in this area. Employers are advised to spend the time from now until April figuring out if the rolled-up holiday pay system can be used and which workers will be eligible.
If you have any questions on any of the issues raised in the above article, please contact Natalia Milne.