A significant court case in July 2022 changed the way holiday entitlement is calculated for part-year and casual workers. However, it raised many more issues than it resolved! Since then, we’ve been awaiting the outcome of a government consultation that would give us practical advice about how to calculate holiday entitlement for these groups of workers.
We thought it would be much more helpful for you if we broke down the proposed changes into a list of FAQs. However, if you have a burning question that is not answered here, please email us at [email protected] or give us a call on 01449 708999.
What was the case about?
The original Supreme Court judgment, which was delivered in July 2022, concerned a 2021 case about a music teacher who worked varied hours each week, and only during term-time. The appeal judgment stated that those working part-years (including term-time only workers and casual workers) were still entitled to a whole year’s leave (which is currently 5.6 weeks’ holiday), which should be paid at average pay. Essentially, even if someone worked only two weeks in a year, they would still be entitled to 5.6 weeks’ holiday.
In response to this judgment, the government launched a consultation to decide how holiday should be calculated for part-year and casual workers. We’ve been waiting for the outcome of this, and the relevant guidance, for many months.
What are the changes?
The changes simplify holiday pay calculations by allowing rolled-up holiday pay for part-year workers and those who work irregular hours, which is currently unlawful.
What is rolled-up holiday pay?
Rolled-up holiday pay is a way of compensating workers for holiday entitlement by including holiday pay in their normal pay. The current situation is that holiday pay must be paid at the time the leave is taken, and that rolled-up pay is unlawful.
How do we calculate rolled-up holiday pay?
Rolled-up holiday pay can be calculated by adding on 12.07% of pay to a worker’s usual pay. This must be indicated in a separate line on the payslip. As part of the worker’s contract of employment – in the statement of employment particulars – you should also show how their pay is made up by clearly stating which elements are basic pay and which are holiday pay.
Who will be affected by these changes?
They will impact part-year workers and those with irregular hours (including term-time only workers and those on zero hours contracts).
Those workers are defined as follows in the recently drafted Statutory Instrument to the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023:
15F.—(1) For the purposes of these Regulations—
(a)a worker is an irregular hours worker, in relation to a leave year, if the number of paid hours that they will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable;
(b)a worker is a part-year worker, in relation to a leave year, 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.
(2) In a case where a worker has more than one contract with the same employer, the reference in paragraph (1)(a) to the number of paid hours that the worker will work under the terms of their contract being wholly or mostly variable includes a reference to the number being wholly or mostly variable when the terms of their contracts with that employer are looked at in the round.
(3) In determining whether a worker is a part-year worker in relation to a leave year, any period of sick leave or statutory leave taken by the worker in that leave year is to be ignored.
Bear in mind that these changes only affect casual and part-year workers and employees. They don’t have any impact on normal, salaried employees.
When do the changes take effect?
Great question. That depends on when your holiday year starts!
Changes will apply to any leave starting on or after 1 April 2024, which means that if your holiday year starts on 1 January, your holiday calculations will not change until 1 January 2025, because this is the first new holiday year after 1 April 2023.
If your organisation is affected dramatically, it might be worth consulting your employees about changing the holiday year so it begins on 1 April 2024. You’ll need to follow a particular process to do this. We can advise, but please get in touch as soon as possible if you’d like to set up a consultation. Don’t leave it to the last minute to speak to us, because you’ll need to allow for a proper consultation period.
What else can I do?
Start thinking now about the workers who may be impacted. These changes are significant. If your current contracts state holiday is calculated in a particular way, they may need to be amended. Even if they don’t, we’d suggest communicating early with your employees about the changes.
Consider the practical impact of changing the start of your holiday year to 1 April. Not everyone may agree with the proposal, but changing the date could save you money in the long run! If you’re planning a consultation about changing the start of the holiday year, make sure you allow enough time to implement this. Here’s something to bear in mind about the 1 April start, though: sometimes holiday years will include two Easters, which might create further issues.
We’d always suggest an annual review of contracts. If you’d like any advice about this, drop us an email at [email protected] or give us a call on 01449 708999.
How we are supporting you
Right now, we’re carrying out an audit of our current clients’ holiday leave years and the types of workers they employ. We’ll be in touch with everyone regarding the changes.
If you are not one of our current clients, we can still help! We’re happy to offer advice on a case-by-case basis: please get in touch. Call us on 01449 708999 or email.