Holiday Pay Reforms for irregular hours and part-year workers

Irregular hours and part-year workers will now have their holiday pay calculated as 12.07 per cent of actual hours worked in a pay period, for leave years starting on or after 1 April 2024. This calculation is based on the fact that all workers are legally entitled to 5.6 weeks’ leave, though may be entitled to more than the minimum if specified in their contract.

What is an irregular hours or part-year worker?

The new regulations set out a definition for irregular hours workers and part-year workers, which the reforms apply to.  

An irregular hours worker works wholly or mostly variable paid hours under the terms of their contract in each pay period. This means they could be on a casual or zero-hours contract. Workers with fixed hours even if over different days, would not qualify as an irregular hours worker. They have to work a different number of hours each week to be classified as an irregular hours worker.

A part-year worker is required to work only part of the year and there are periods in that year of at least a week during which they are not required to work and for which they are not paid. Unlike irregular hours workers, part-year workers may have fixed hours and it is the work pattern that is applicable, e.g. they work term time only.

Annual leave for irregular hours or part-year workers

Under the new rules, workers who have been unable to take the annual leave they were entitled to because they were on maternity or other family-related leave can carry over all their holiday entitlement to the following leave year. The regulationsalso set out that workers could carry forward leave to the next year if their employer refused to pay them their entitlement, they did not give the worker a ‘reasonable opportunity’ to take their leave or encourage them to do so, or the employer did not inform the worker that untaken leave must be taken by the end of the year to avoid it being lost.

An irregular or part-year worker could potentially carry over up to 28 days leave as a result of being off sick, so it’s crucial that employers familiarise themselves with the detail and that workers are made aware of their rights.

Holiday Pay

Under the reforms, four weeks of the minimum 5.6 weeks’ paid holiday entitlement carried forward must be paid at a worker’s normal rate of pay, while the rest can be paid at a basic rate of pay. The guidance says that the normal rate of pay must include payments, including commission payments, intrinsically linked to the performance of tasks that a worker is contractually obliged to carry out, as well as payments relating to professional or personal status relating to length of service, seniority, or professional qualifications. Payments, such as for overtime, which have been regularly paid to a worker in the 52 weeks preceding the calculation date, must also be included when calculating the normal rate of pay.

For holiday leave years beginning 1st April 2024, employers will be able to cover a worker’s holiday pay through including an additional amount in their payslips, instead of paying holiday pay when they take annual leave.  Rolled-up holiday pay was previously ruled unlawful by the European Court of Justice because of concerns that workers might be de-incentivised from taking annual leave.

The reforms now allow rolled-up holiday pay to be made, though it is not obligatory, and employers can choose not to implement this. If they do decide to implement rolled up holiday pay for existing workers, they will need to apply a variation to contractual terms for existing workers to amend their contract (with notice) and apply the new contractual terms for new irregular hours/part-year workers. There are concerns that employers who do chose to apply rolled up holiday pay may not comply with their duty of care to ensure workers are taking the required time off. Those employers are going to need to have robust and closely monitored leave arrangements to avoid those workers not taking appropriate time off.