Companies with a holiday calendar year that begins in January could be affected by new regulations regarding holiday pay and entitlement. Samantha O’Sullivan, Chartered Institute of Payroll Professionals’ (CIPP), explains the impact on employers.
Employers should be aware that the new holiday pay reforms will take effect in January 2024. This could affect those who begin their holiday year from January 2025.
All payroll processors should be aware that the Department for Business and Trade has released guidelineson the changes to the Working Time Regulations. What does this mean for you and how will the changes affect your payroll?
Reform aims to simplify the calculation of holiday pay and entitlement for part-year and irregular hour workers.
What is already in place?
In the past, it was possible to determine which payments should be considered normal pay by using case law. The legislation will now define “normal remuneration”.
Included in this would be payments directly related to the performance of work such as commissions; payments relating professional or personal status, such as qualifications; and other regular payments paid over the past 52 weeks such as overtime.
What is the definition of part-year or irregular hour workers?
The regulations clarify the calculation of holiday pay and entitlement for part-year and irregular-hours workers. Employers can now identify these workers correctly and comply with the law by using new definitions.
When an employee’s contracted working hours are largely or completely variable, they are called irregular hour workers. This includes casual and zero-hours workers.
Part-year workers are employees who have a contract to work only part of the calendar year. This means that for at least a week of the year they will not need to work, and won’t be paid.
Part-year workers include seasonal workers who work during the spring, summer and fall but are not paid or contracted to work in winter or autumn.
Only those who have been classified as part-year or irregular-hour workers can use the methods below to administer leave.
For leave years beginning before 1 April 2020, holiday entitlements will continue to follow the same formula. This means that all workers will receive 5.6 weekly annual leave entitlements and be paid when they take that leave, using a 52 week average pay calculation.
Employers can choose between:
- As a way to accumulate holiday entitlements, you can use them as vacation or leave.
- pay rolled-up holiday pay.
Workers who work irregular hours or part-year and receive 5.6 weeks of statutory holidays will have their entitlement calculated as 12.07% actual hours in a pay period.
Holiday hours accrual
You would calculate 12.07% of your pay in a period to accumulate leave. Hours are rounded to zero for less than 30 mins, but to an hour if more than 30 mins. CIPP is in contact with the Department of Business and Trade regarding the rounding down process, as this does not align with other guidelines.
Employees will have to request time off using this method. The leave is paid out when it’s taken using the normal reference period calculation (52 week average).
Rolled-up holiday pay
Roll-up holiday pay is a method of paying employees for holiday entitlements as they accrue during a pay period rather than when the holiday is actually taken.
Prior to the Working Time Directive, rolled up holiday pay was considered illegal. Nevertheless, legislative amendments have made rolled-up holidays pay legal for part-year and irregular-hours workers.
Holiday pay must be shown separately on the payslip. Leave is still required by employers.
Calculating the value of the rolled-up holidays pay is as simple as multiplying the total salary for a period by 12,07% (statutory entitlement).
Each pay period, the entitlement must be paid and shown on a separate line of the payslip. This will identify the payment.
- A worker who is paid monthly, and has worked 134 hour at PS11.44 an hour:
This means that 134 x 11.44 = 1,532.96 PS total pay for this pay period. - Holiday pay for PS1,532.96 is PS185.03 x 12.07%.
Accrual of statutory leave
While employees are on leave, they will continue to earn holiday entitlement. Sick leave or family leaves.
Employers who accumulate leave in a bank must calculate the average number of hours worked using a 52 week reference period. In the calculation, any weeks with statutory leave must be excluded. Weeks without work or pay are included.
You can also take the average of all holiday pay components paid during the reference period. This includes and excludes weeks, on the same basis.
What should we be doing now?
As you prepare for your start date, identify those workers who will be affected. Decide on the method of calculation that you will use and communicate with them.
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