Beginning on January 1, 2024, the UK government has stated that it intends to modify the laws governing holiday pay reforms and annual leave.
The computation of holiday pay and compensation will be affected by these modifications, especially for part-time and irregularly scheduled employees.
Here are a few important things to keep in mind:
Holiday Entitlement
The majority of employees will continue to be entitled to the present holiday pay reforms legislation, which provide for 5.6 weeks of paid vacation annually.
However, a new system based on the number of hours people really work will determine holiday entitlement for part-time and irregular hour workers.
Employees with irregular hours see a major or total shift in their hours throughout the course of each pay period over the contract year.
Part-year workers have a minimum of one week of unpaid leave (not including sick or family leave) during the contract year and only work during designated periods of the year.
The holiday pay reforms rate for these workers will be 12.07% of their total working hours, rounded to the nearest quarter of an hour.
This implies that employees will receive one hour of vacation for every 8.3 hours worked.
Additionally, a new cap of 17.5% of their earned entitlement will apply to the amount of vacation they can carry over to the next leave year.
An irregular-hours employee, for instance, can only carry over 4.9 hours of vacation entitlement to the next leave year if they collect 28 hours of vacation entitlement in one leave year.
Holiday Pay
The majority of employees will continue to receive their regular pay reforms during the first four weeks of their leave and their basic pay for the last 1.6 weeks, as per the current holiday pay standards.
The definition of normal pay, however, will be broadened to include payments that are directly related to job performance, payments that represent an employee’s position in the workplace or in society, and other payments that have been made on a regular basis during the previous 52 weeks.
This means that, during the first four weeks of vacation, commission, performance-based incentives, overtime, and other allowances will all be covered by holiday pay, provided they meet the requirements.
A new approach based on their average salary over the previous 52 weeks will be used to calculate holiday pay for part-time and irregular hour workers.
This implies that their holiday pay will be based on their actual earnings rather than a set rate.
Additionally, they will be subject to a new cap on the total amount of holiday pay they are eligible to receive in a single leave year, which is 100% of the average wage they were paid for the preceding 52 weeks.
For instance, an employee with variable hours who makes £10,000 in a leave year is only eligible to receive £10,000 in holiday pay for that leave year.
What is the purpose of these changes?
The government claims that these changes will simplify the legislation governing holiday entitlement and remuneration, making them more uniform and equitable for all employees.
They also aim to address issues brought up by recent court cases, such the 2022 case, which questioned the accepted practices for determining holiday entitlement and compensation for non-typical workers.
According to the government, these steps will benefit businesses and workers alike by reducing ambiguity, conflict, and administrative hassles and guaranteeing that workers receive all of their vacation time.
What Happens Next?
The draft regulations may be amended before they take effect and are still awaiting parliamentary approval.
Northern Ireland, which has its own devolved employment law authority, will not be subject to the revisions; instead, they will only apply in England, Scotland, and Wales.
The changes will take effect for leave years starting on or after April 1, 2024, therefore certain employees might be subject to various restrictions for various parts of their leave year.
If employers or employees have any questions or concerns about the new regulations, they should review their contracts, policies, and processes and consult an expert.
