Significant Changes to Holiday Pay and Entitlement
Employment Law Update By Kate Palka
The Government has made changes to the Working Time Regulations (WTR), with the purpose of simplifying the law in this area and codifying principles of EU law. However, the changes have been widely criticised as creating further uncertainty for employers.
Changes include:
- A definition for new classes of workers: “part-year workers” and “irregular-hours workers”;
- New rules setting out how holiday accrues for these workers;
- A new right for employers to be able to roll up holiday pay for these types of workers;
- Defining “normal pay” to include overtime, commission and other payments;
- Clarity on when workers can carry holiday from one year to the next;
- Alterations to record keeping rules.
Combining leave
Under the WTR 1998, workers are entitled to 5.6 weeks of paid annual leave each year, divided into:
- The right under regulation 13 of the WTR 1998, of four weeks each year (20 days for full-time employees) (“regulation 13 leave”).
- The right under regulation 13A, which grants an additional 1.6 weeks’ annual leave each year (8 days for full time employees), (“additional leave”).
This created a great deal of confusion.
Regulations 13 and 13A have been replaced with one regulation setting out a single entitlement to 5.6 weeks of paid annual leave.
The total statutory annual leave entitlement for workers has not changed. Nor is there any change to the position on bank holidays. Employers are still able to choose to include bank holidays in the statutory entitlement.
Combining leave: but not pay
Every worker is entitled to 5.6 weeks’ paid leave. Four weeks must be paid at a worker’s ‘normal’ rate of pay (Reg 13). This could include regular payments, such as overtime, regular bonuses and commission. The remaining 1.6 weeks’ entitlement can be paid at the worker’s basic remuneration (Reg 13A).
The Government consulted on changing this but did not do so.
The Government have now defined what is “normal” pay – it includes bonus, commission and regular overtime.
The regulations do not state which entitlement (4 weeks or 1.6 weeks) should be used first. Many employers choose not to distinguish between the two pots of leave, and to pay the entire 5.6 weeks at the ‘normal’ rate of pay.
If an employer wishes to pay different holiday rates for different periods of leave, then they should consider explaining this clearly.
Holiday: rolled up pay (from April)
Part-year and irregular hours workers (now defined properly) are entitled to up to 5.6 weeks of paid statutory holiday entitlement per year, calculated according to actual hours worked using the 12.07% accrual method.
If you are using rolled-up holiday pay, check the workers’ contracts in case this amounts to a variation of contract. Employers should tell their workers if they intend to start using rolled-up holiday pay and this payment should be clearly marked as a separate item on each payslip. This is to be paid in addition to the worker’s normal salary.
Employers of agency workers must include this information in the agency worker’s Key Information Document.
Employers that do not want to use rolled-up holiday pay for irregular hour and part-year workers can continue to use the existing 52-week reference period to calculate holiday pay for irregular hours workers.
Holiday: carry over
If a worker is unable to take holiday due to sickness or family leave, they may carry over the full leave entitlement of 5.6 weeks.
They can take four weeks if:
- They have been denied their right to take paid leave (or have not been encouraged to take it); or
- They have not been informed that they would lose it at the end of the holiday year if they did not take it.
Employers should make clear the ‘use it or lose it’ rule in policies and issue regular reminders to employees that their holiday entitlement will be lost if they do not use it before the end of the holiday year. It remains to be seen what constitutes ‘encouraging’ employees to take leave under the new statutory definition.
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