Understanding the latest holiday pay reforms

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In the ever-evolving landscape of employment regulations, staying abreast of changes is crucial for businesses to ensure compliance and effective management of their workforce. One such recent change revolves around holiday pay and entitlement reforms introduced by the Department for Business and Trade (DBT), effective from 1 January 2024. Let’s delve into what these reforms entail and how they may impact your organisation’s payroll procedures.

Simplifying holiday entitlement and pay calculations

The primary objective of these reforms is to streamline the calculation of holiday entitlement and pay, particularly for workers with irregular hours and part-year schedules. Gone are the days of relying solely on case law; now, legislation defines “normal remuneration” to include various components such as commissions, payments related to professional or personal status, and other regular payments made within the last 52 weeks, like overtime.

New definitions for irregular hours and part-year workers

To facilitate accurate identification and processing of entitlements, new definitions have been established for “irregular hours workers” and “part-year workers.” Irregular hours workers are those whose contracted hours vary significantly, including casual or zero-hour contract workers. On the other hand, part-year workers are employed for only part of the year, resulting in periods of non-work and non-payment.

Options for holiday entitlement management

Employers now have two primary options for managing holiday entitlement for affected workers:

  1. Accruing a Bank of Holiday Hours: Under this method, holiday entitlement is accrued as a bank of leave to be taken as holiday. The calculation involves determining 12.07% of hours paid in a pay period. Employees then request leave as required, with pay calculated using the 52-week average to determine normal remuneration.
  2. Rolled-Up Holiday Pay: Rolled-up holiday pay allows employees to be paid their holiday entitlement as it accrues in each pay period, rather than when it’s taken. This method, previously deemed unlawful, is now permissible for irregular hours and part-year workers. The entitlement is calculated at 12.07% of total pay in a pay period.

Accrual during statutory leave

Importantly, holiday entitlement continues to accrue during periods of statutory leave, such as sick leave or family leave. Employers using a bank accrual system utilise a 52-week reference period, adjusting for weeks containing statutory leave. For rolled-up holiday pay, an average of holiday pay elements paid in the reference period is calculated.

Next steps for employers

In preparation for the implementation of these reforms, employers are advised to:

  • Identify affected workers within their organisation.
  • Decide on the preferred method of calculation for holiday entitlement.
  • Maintain open communication with employees, informing them of any changes to their entitlements.

Navigating holiday pay and entitlement regulations can be complex, but with a clear understanding of the latest reforms and proactive steps, employers can ensure compliance while effectively managing their workforce. By embracing these changes and adapting their payroll procedures accordingly, businesses can foster a harmonious work environment while meeting legal obligations.

Posted in Blog.