Holiday Pay Reform: How to Play by the New Rules

In the ever-changing world of employment regulations, SMEs have yet again found themselves at a crossroads. This year marks a shift regarding holiday pay, with the Working Time Regulations undergoing a significant facelift for irregular hours and part-year workers. We break down the intricacies of these changes, designed to simplify and streamline payroll management for smaller businesses.

Understand the Changes

The Working Time Regulations underwent significant changes at the start of 2024, impacting how employers calculate holiday pay for irregular hours and part-year workers. These reforms aim to simplify calculations and make rules for employers more consistent.

Starting from ‘leave years’ on or after Monday, 1st April 2024, employers will calculate holiday pay as 12.07% of actual hours worked. This change is in response to a 2019 Supreme Court ruling (Harpur Trust v Brazel), ensuring that part-year workers on permanent contracts receive the full 5.6 weeks’ holiday pay.

The reforms also provide specific definitions for irregular hours and part-year workers. Employers should familiarise themselves with these categories, as they may apply to employees who were previously considered agency or zero-hours workers. ‘Irregular hours workers’ have wholly or mostly variable paid hours, while ‘part-year workers’ have periods of at least a week at a time when they don’t work.

Make Considerations

Workers who couldn't take their entitled annual leave due to maternity or family leave can now carry over all their holiday entitlement to the following year. Employers should note that workers have until 31st March 2024 to carry over any Covid-related leave accrued before 2023.

The legislation confirms the right for workers to receive their normal compensation for 20 days of their holiday entitlement. Employers must include payments linked to performance and regularly paid additions like overtime in their calculations.

From 1st April 2024, employers can opt to include a bonus in payslips instead of paying holiday pay. While ‘rolled-up’ holiday pay is now permissible, it’s not mandatory. Employers should consider the associated admin and make sure their team take the required time off.

In Summary

These holiday pay reforms aim to streamline the process for employers managing irregular and part-year workers. It’s crucial for small businesses to understand the new regulations, classify workers correctly and comply with legal requirements.

SMEs should do their research to avoid confusion leading to overpayments or underpayments. They should also stay informed, communicate changes to staff clearly and seek professional advice if necessary.

Efficient Business Banking

Whether you run a startup or part of a well-established business, having a current account is necessary for all registered companies.

A wide array of business account providers offer a range of accounts that feature overdrafts, online account management, and app integration to balance text alerts. Having a business-specific account gives you a clear separation between personal and business finances.

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