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New important changes to holiday rules

On 8 November 2023 the Government announced that it would be making significant changes to the law on annual leave.

The aim of the new legislation is to alleviate pressure on employers by clarifying certain issues from recent case law.

In particular, following the Harpur Trust v Brazel case, there has been some confusion as to how employers should calculate holiday pay for irregular hour and part year workers, due the fact it was ruled that holiday could no longer be calculated using 12.07% method. The outcome of this meant that in some cases, part year and irregular hours workers were entitled to more annual leave pro rata than some workers with regular hours, plus it also resulted in more work for employers in trying to assess the correct holiday pay each eligible employee was entitled to!

The headline changes being introduced in 2024 are:

New rules for holiday accrual and pay for ‘irregular hours workers’ – including the option of rolled up holiday pay

The Government has decided to create new definitions of "irregular hours workers" and "part-year workers". Workers who fall into these definitions will be removed from the scope of the existing rules on holiday accrual and pay under regulation 13 and 13A of the Working Time Regulations 1998. Instead, they will be covered by new regulations 15B to 15F, which will be added to the Working Time Regulations. The new regulations will provide:

  • A new holiday accrual method under regulation 15B, whereby holiday accrues based on 12.07% of the hours worked by the worker in the previous pay period.
  • An option for employers to use ‘rolled up’ holiday pay (provided that certain conditions are met). This is where holiday pay for regulation 15B holiday can be paid as an additional percentage of pay at the time when the hours are worked, rather than being paid when the annual leave is actually taken.

Importantly, these new changes only apply in relation to leave years which start on or after 1 April 2024. As many employers use the calendar year as their holiday year, that will mean that for them and their staff, the changes will not take effect until 1 January 2025.

For any current leave years, or any leave years that start before 1 April 2024, the position will still be covered by the law as it currently stands (i.e. including the Harpur Trust v Brazel position).

It is interesting to see that ‘rolled up’ holiday will soon officially be permitted. Over the years the courts had declared it to be unlawful to pay ‘rolled up’ holiday pay, but because it was a convenient method to use when dealing with casual or variable hours staff, some employers had still continued to use it anyway. We expect that many employers who aren’t using rolled-up holiday pay for their irregular hours workers will now look to switch to that system so as to try to ease their administrative burden.

Changes to rules on carry forward of holiday – for all workers

All workers will be able to carry forward their leave if they have been prevented from taking it for any of the following reasons:

  • Being on family-friendly leave
  • Sickness
  • If they were denied holiday by their employer
  • If the employer has failed to give the worker a reasonable opportunity to take holiday or has failed to encourage them to do so
  • If the employer hasn’t warned the employee that the holiday will be lost at the end of the leave year.

These changes are intended to bring the law into line with the recent developments from legal cases, although arguably they go further. Employers may need to update their policies to reflect these rules, as well as ensuring managers are appropriately trained about encouraging staff to book their leave.

If you have any questions (or need help adjusting!) or if you need any advice on your position regarding staff holiday, please do not hesitate to contact our Employment Team.