Statutory holiday entitlement: what changes in April

Overview

Extensive amendments were made to the Working Time Regulations last year. Those which were aimed at clarifying the existing law took effect on 1 January 2024.

The remaining changes will come into effect for holiday years beginning on or after 1 April 2024. They are directed at two groups of so-called atypical workers: irregular hours workers and part-year workers.

Which workers are affected?

Amendments to the Regulations introduce two new definitions:

• A worker is an irregular hours worker if their contractual hours are “wholly or mostly variable” in a given leave year.
• A worker is a part-year worker if they're required to work for only part of the leave year, and there's a period of at least a week in that year which they're not required to work and for which they are not paid.

As with most legal definitions, there's some uncertainty about their scope. Grey areas have already emerged. For example, what does “mostly variable” mean in the definition of an irregular hours worker? Also, does the definition of a part-year worker extend to someone whose pay is calculated based on the hours they're required to work, but converted into an annual salary and paid at regular intervals throughout the year?

It is however clear that the new rules will apply to most workers on zero-hours contracts, other casual workers, gig-economy workers and part-year workers who aren't paid during periods they're not required to work. In the rest of this briefing, we'll refer to workers who meet either definition as “atypical workers”, although there remains some atypical workers who won't satisfy either definition.

One important feature of both definitions is that they're applied from leave year to leave year. So workers’ status needs to be reviewed annually, and workers could move in and out of the new regime despite continuing to work for the same employer.

What do the new rules say?

The amendments to the Working Time Regulations have created a separate holiday regime for atypical workers in four key respects:

• Unlike other workers, they accrue holiday entitlement on a month-by-month basis
• There are additional rules for the calculation of holiday pay
• There are more generous rules for carrying forward leave
• Rolled-up holiday pay is permissible (it's still not allowed for other workers)

Accrual of holiday entitlement

Atypical workers will accrue holiday entitlement in hours at the end of each pay period. This entitlement accrues at the rate of 12.07% of the number of hours worked during that period. Accrual during sick leave or statutory leave is based on the average number of hours worked during the “relevant period”, which will normally be the 52 week period prior to the start of that leave.

This is different from the rules that continue to apply to other workers, where the Regulations don’t make any provision for accrual of leave except in the first year of employment. In that case entitlement accrues in weeks (or fractions of a week) at the rate of 1/12th of their annual entitlement on the first day of each month.

Calculation of paid holiday in hours

Since atypical workers will accrue annual leave in hours rather than weeks, the provisions in the Regulations for calculating holiday pay have been adapted. In a somewhat counter-intuitive process, employers will have to begin by calculating a week’s pay in the same way as under the previous regime for atypical workers. They must then divide that figure by the average number of hours worked during the relevant reference period, to create an hourly rate of holiday pay for the period of annual leave in question.

Carrying forward leave

All leave to which atypical workers are entitled may be carried forward into the next leave year, if the contract of employment or other relevant agreement provides for this.

The carry forward rules remain different for other workers who can only carry forward their additional leave of 1.6 weeks in this way and not their core four week entitlement. For atypical workers, there's no longer any distinction between these two types of leave.

Rolling up holiday pay

As an alternative to paying holiday pay when holiday is taken, employers will be allowed to pay rolled-up holiday pay at the rate of 12.07% of the pay for any work done. The rolled-up payment must be made at the same time the worker is paid for the work done. When the worker is on sick leave or statutory leave, payment of holiday pay must be made to reflect holiday entitlement that has accrued during that leave period.

Conclusion

These new rules for atypical workers represent the most significant change to the statutory holiday regime for many years. However, they will not have an immediate impact for many employers. For example, employers who use the calendar year for their holiday year have until the end of 2024 to implement any necessary changes to their holiday pay arrangements.

Another key point is that the rules for other workers remain unchanged. While the relaxation of the rules around rolled up holiday pay for atypical workers will be welcome, this has come at the price of creating two separate holiday pay regimes. Although there's considerable overlap between the two sets of rules, this added complexity will not be universally welcomed.