Holiday entitlement and pay changes – 1st January 2024

The main changes are:

1. Defining what is normal pay, and should be included in holiday pay calculation; and
2. Clarification over how to work out holiday entitlement and pay for a worker who has irregular hours (applies to leave year starting on or after 1^st April 2024).

There is a useful guidance note on the government website.

Holiday Entitlement explained:

All workers and employees in Great Britain have a legal minimum entitlement to 5.6 weeks of paid holiday per annual leave year. This legal minimum entitlement is made up of two parts:

1. 4 weeks’ derived from European legislation, which is incorporated into UK law in the Working Time Regulations = Basic entitlement; and
2. Additional 1.6 weeks’ leave only found in UK law = Additional entitlement.

In addition, some employers offer more holiday over and above the legal Basic and Additional entitlement:

3. Contractual entitlement = anything over and above 5.6 weeks.

Holiday pay:

From 1^st January 2024, different provisions in relation to holiday pay apply to the Basic entitlement and the Additional entitlement. The Basic entitlement is to be calculated based on normal pay – this will include basic pay, and regular overtime, commission etc; and the Additional 1.6 weeks’ can be paid at basic pay i.e. not including overtime, commission etc. We have had this message from various pieces of case law in recent years, however the updates to legislation now define that the Basic entitlement must be paid based on normal pay.

This means that an employer could sometimes have different rules on how to calculate holiday pay depending on if that leave was Basic, Additional, or Contractual entitlement. In reality a lot of employers apply the most generous calculation for holiday pay to all types of entitlement to avoid the burden of different treatment. However, there may be situations where it is beneficial to treat the leave differently. Many employers will continue to choose not to differentiate between the different entitlements.

Irregular hours/part year

Definitions for irregular hours and part year works have been now included in the WTR.

Irregular hours worker means:

“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.”

Part year worker means:

“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. This includes part-year workers who may have fixed hours, for example, teaching assistants who only work during term time, and who are paid only when working.”

For irregular and part year workers for holiday year beginning on or after 1^st April 2024, holiday will be calculated based on 12.07% of actual hours worked in any pay period.

Next steps to ensure compliance:

1. Check employment contracts and current practices in relation to calculating holiday entitlement and pay for all types of workers and employees;
2. If your workers or employees receive regular overtime, commission or allowance, review whether holiday pay calculations take this into account;
3. If you have workers or employees who carry out irregular hours, review how you are calculating their holiday entitlement and pay;

How can Ellis Jones help?

If you believe changes are needed, you will need to come up with a strategy for change based on the risks. We often advise clients about the most commercial way to make changes to employment terms with least disruption and risk to the business. One of our team will be very happy to assist you with navigating the changes to holiday entitlement and/or pay, or any other employment law or HR matter, please contact us on 01202 525333 or by email at employment@ellisjones.co.uk.