- 25 Nov 2024
- •
- 3 min read
Changes to holiday pay
Most workers have a right to a minimum of 5.6 weeks paid annual leave under regulations 13 and 13A of the Working Time Regulations 1998 (WTR). This equates to 28 days for a full-time worker (five days a week), although many receive additional holiday rights under their contracts.
However, on 1 January 2024, new provisions were introduced into the WTR in relation to calculating holiday pay, carry-over of leave, accrual and rolled-up holiday pay for part-year and irregular hours workers.
This note focuses on the changes to the definition of a ‘week’s pay’ in relation to calculating holiday pay.
When do the rules apply?
Although the regulations came into effect on 1 January 2024, they only begin to apply for an employer’s annual leave year beginning on or after 1 April 2024. Therefore, for any business whose annual leave year runs from 1 January to 31 December the new rules will apply from 1 January 2025.
What changes have been made?
Before 1 January 2024, workers were entitled to 5.6 weeks holiday which was split into:
- 4 weeks under regulation 13 at ‘normal remuneration’; and
- 1.6 weeks additional leave under regulation 13A at ‘basic pay’. This is essentially the normal 8 bank holidays in England and Wales, pro-rated for part-time employees.
The January 2024 changes only apply to the first 4 weeks of leave. Pay for the additional 1.6 weeks remains as ‘basic pay’ (so not including any overtime, bonuses or commission, although many employers will include them anyway).
Essentially, workers are entitled to receive a week’s pay for a week’s leave. The January 2024 changes codified certain EU principles on how to calculate a week’s pay and what ‘normal remuneration’ should include. This now means that holiday pay for the first 4 weeks will include:
- Payments, including commission payments, intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract.
- Payments for professional or personal status relating to the length of service, seniority, or professional qualifications.
- Other payments, such as overtime, which have been regularly paid to a worker in the 52 weeks preceding the calculation date.
Whether payments like bonuses are covered will depend on the reason for payment and/or how regularly the bonus is paid. For example, an annual bonus based on company performance is unlikely to be covered, whereas a bonus linked to performance or productivity should be included in the holiday calculation. Discretionary bonuses may also be covered if they are paid regularly enough.
Comment
In reality, this change will only really impact on workers with normal working hours who previously would only receive their basic pay for holiday. Employees with no normal working hours were already entitled to have the above elements included in their holiday pay.
While these changes have been in effect since January 2024, many employers are either not aware of their obligations or are falling short. This can lead to employment tribunal claims from workers who could claim back up for up to two years.
While failure to pay correct holiday can result in employment tribunal claims from workers, it can also have an impact on business sales or purchases.
It’s certainly something to look out for when acquiring a business as the implications could be substantial. Holiday pay questions during the “due diligence” stage should clearly refer to the new obligations. Further, any concerns regarding a failure to pay the correct holiday pay should be dealt with in the relevant purchase agreement.
This note only touches on the calculation for a week’s pay. This forms only a small part of the January 2024 changes. The rules on holiday remain complicated and may have a substantial impact on holiday practices, particularly in relation to part-yearly workers or those with irregular hours. Get in touch if you want to find out more.
Disclaimer
This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.
