Annual leave and holiday pay laws to be radically reformed
From 1 January 2024
Annual leave and holiday pay laws to be radically reformed from 1 January 2024
The Department for Business and Trade has recently announced plans to make significant changes to annual leave and holiday pay laws. A response to two consultations and draft regulations have been published which, subject to parliamentary approval, will make the following key changes in this area of law:
Holiday pay rates
From 1 January 2024, the law will more clearly specify what is included in holiday pay for the first four weeks’ annual leave (reg 13 WTR 1998) so that, to the extent it does not already do so, it must now include:
- Payments, including commission payments and performance-related bonuses, which are intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract;
- Payments for professional or personal status relating to length of service, seniority or professional qualifications; and
- Other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date.
Holiday pay for the additional 1.6 weeks’ annual leave (reg 13A WTR 1998) can continue to be based on basic pay, plus any guaranteed overtime. The table below illustrates the new rules:
| Holiday Pay: What must be included from 1 January 2024 | |
|---|---|
| Column 1 First 4 weeks’ leave (reg 13 WTR 1998) | Column 2 Additional 1.6 weeks’ leave (reg 13A WTR 1998) |
| Basic Pay | Basic Pay |
| Overtime – the following types: - Guaranteed overtime - Non-guaranteed but compulsory overtime - Overtime payments, which have been regularly paid to the worker in the previous 52 weeks | Guaranteed Overtime |
| Commission payments which are intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out | |
| Bonuses, allowances or payments which are intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out (eg performance-related bonuses based on personal performance) | |
| Payments for professional or personal status relating to length of service, seniority or professional qualifications | |
| Other payments which have been regularly paid to a worker in the previous 52 weeks |
Holiday pay rates for irregular-hours and part-year workers will be based on the new calculations used for regulation 13 leave (set out in column 1 above) for the entirety of their leave entitlement.
Irregular-hours and part-year workers, including rolled-up holiday pay
In relation to leave years starting on or after 1 April 2024, provided they meet the relevant statutory definition, these workers will be removed from the scope of the existing holiday entitlements under regulation 13 and 13A of the WTR 1998 (set out above). They will instead be subject to new regulations, which will provide:
- A new holiday entitlement whereby holiday accrues based on 12.07% of the hours worked in the previous pay period; and
- An optional right for employers to implement a system of rolled-up holiday pay for their irregular-hours and part-year workers. This will be based on a 12.07% uplift on pay paid at the time work is done, instead of when the worker takes annual leave.
A worker is an irregular-hours worker if, under their contract, the number of paid hours that they will work in each pay period during the term of their contract in that year is wholly or mostly variable.
A worker is a part-year worker if, under the terms of their contract, they are required to work only part of that year and there are periods within that year (during the term of the contract) of at least a week which they are not required to work and for which they are not paid (ignoring any periods of sick leave or statutory family leave).
Holiday pay rates for irregular-hours and part-year workers will be based on the new calculations used for regulation 13 leave (set out in column 1 above) for the entirety of their leave entitlement.
Repeal of Covid-19 carry-over rules
The emergency legislation passed during the coronavirus pandemic, which relaxed the restriction on carrying over annual leave if it was not reasonably practicable for a worker to take some or all their leave due to the effects of coronavirus (on the worker, the employer or the wider economy or society), will be repealed from 1 January 2024. Workers will have until 31 March 2024 to use up any unused carried-over leave.
Holiday carry-over
The new regulations will preserve workers’ existing EU-derived rights which allow workers to carry untaken holiday over to the next leave year in the following specified situations:
- Where a worker was unable to take holiday due to being on maternity/adoptions leave, paternity leave, shared parental leave, parental leave or parental bereavement leave;
- Where a worker was unable to take holiday due to sick leave (i.e. absence from work due to sickness or injury);
- Where the employer has failed to recognise a right to holiday, or a right to paid holiday;
- Where the employer has failed to give the worker a reasonable opportunity to take holiday, or has failed to encourage them to do so; and/or
- Where the employer fails to inform the worker that holiday not taken will be lost at the end of the leave year.
The new rules on holiday entitlement for irregular-hours and part-year workers will also contain similar carry-over provisions.
Other law reforms
Various other significant employment law reforms have been announced in recent days. We will be issuing separate alerts in relation to the other proposed reforms in due course.
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