The government has decided to undo the changes made to holiday pay calculations after the Harper Trust v. Mrs Brazel case in July 2022. In 2022 the Supreme Court ruled that the old 12.07% calculation, which had been in use for years, was no longer relevant. Due to these changes in holiday pay regulations for employees with irregular hours, many businesses had to rethink their policies.
Because of the Supreme Court ruling a government-led review was promised. A consultation on the Supreme Court decision on calculating holiday pay for the part time worker was launched this time last year. The results of the consultation were announced in November.
Results of the consultation process for holiday pay for employees on irregular hours
The headline responses are as follows:
- All full-year workers are still entitled to 5.6 weeks of statutory holiday entitlement. There is no change here. Of course, some employers may offer more under the contract of employment.
- The government has abandoned plans to introduce a 52-week holiday entitlement reference period. Instead, entitlement will be calculated as 12.07% of hours worked in a pay period for part-year workers or those with irregular hours.
- The two existing rates of holiday pay will be maintained (Regulation 13 and Regulation 13A) and there won’t be a single annual leave entitlement created. This means workers will continue to receive:
- 4 weeks at a normal rate of pay – normal rate of pay includes commissions and overtime. This is because the “normal rate” must include additional income the employee might have received had they been working.
- 6 weeks at the basic rate of pay – without any additions. This covers the entitlement to bank holidays.
- Rolled-up holiday pay. The regulations allow the employer from 1st April 2024 to pay the holiday pay in each payslip. This is instead of when an employee takes the holiday. It’s just like how you would pay someone on a fixed salary.
The effective date of change is 1st April 2024.
What does this mean for you if you have workers with irregular hours?
To start with, it’s important to understand the concept of irregular hours. According to the law, an individual who has fluctuating working hours throughout the year may be considered an irregular-hours worker.
Normally, an employment contract will specify either the number of hours to be worked or, if unavailable, a zero-hour or variable-hour contract, which may result in irregular working hours.
If you do not have contracts of employment for each member of your team, please address this issue urgently. While we do not create such contracts as it is a legal matter, we can certainly guide you in the right direction. Please email your normal manager.
We can’t stress enough about the importance of having an employment contract in place and having it reviewed regularly.
You can find out more about employment contracts here
Example of statutory holiday pay entitlement for employees working irregular hours.
Tej is working irregular hours for his employer and is paid monthly. He works as and when his employer needs him to. He is entitled to the statutory minimum holidays.
In October he works 68 hours.
Here’s how the holiday pay will be calculated.
|Divide hours worked by 100
|68/100 = 0.68
|Multiply the answer in 1 by 12.07
|0.68 x 12.07 = 8.2076
|Round up or down as usual to the nearest whole number
Tej will be entitled to 8 hours of holiday pay in October.
Is 12.07 the magic number for calculating holiday pay?
The 12.07 figure is a breakdown of 5.6 weeks everyone is entitled to as the statutory minimum:
- Takeaway 5.6 weeks from 52 (number of weeks in a year)
- This gives you 46.4 weeks
- 6 divide by 46.4 = 12.07
Oi voilà, we have the magic number for calculating holiday entitlement, but it’s not always applicable. It’s important to note that if your employment contract states a 6-week holiday entitlement, then 12.07 is not correct. The correct number of weeks would be 13.04 etc.
Here’s the full published guidance from the Department of Business and Trade. It is quite useful even if the examples given to help you understand the issues are put simply.
Just to add, the guidance mentioned covers topics such as how to handle situations where new hires start mid-year or how to treat employees who leave the company. It also provides information on carrying over unused holiday entitlement.
It’s a useful read if you are doing your payroll.
If we are managing your payroll, you can be confident that everything is taken care of. If you have any queries, feel free to get in touch with your payroll manager. However, if we are not currently providing payroll services for you and you wish to learn more, please send an email to Priya at email@example.com.