Do you employ irregular or part-year workers?

Do you employ irregular or part-year workers?

If the answer to the above question is yes, you need to be aware of the new reforms coming into effect for workers whose holiday years start on or after 1 April 2024.

The reforms have been set out to simplify holiday entitlement and holiday pay calculations. 

For irregular and part-year workers the following changes apply for those with holiday years starting on or after 1 April 2024:-

• Accrual rates (rates used to calculate a sum) have been introduced for irregular and part-year workers for the calculation of holiday entitlement. 
• For employees entitled to the minimum statutory 5.6 weeks holiday per year, employers can use an accrual rate of 12.07% of the hours worked each pay period, to calculate the holiday entitlement due.
• If the holiday entitlement is more than the standard 5.6 weeks (due to elements such as contractual increases, years served etc), the relevant accrual rate would need to be calculated as follows:-

14.54% is your accrual rate for a holiday leave entitlement of 6.6 weeks in this example.

The accrual rate is multiplied by the hours worked, for example, an employee working 100 hours per month would be entitled to 14.54hrs (rounded to nearest hour) of paid holiday leave, based on the 6.6 weeks of holiday entitlement.

• Irregular and part-year workers can be paid the accrued holiday pay in each pay period, rather than when holidays are actually taken.  This must be shown as a separate payment on the payslip.
• HMRC have also introduced a method to calculate holiday entitlement for irregular and part-year workers on statutory leave i.e. sick or parental leave.  This calculation involves using an average (of the ‘normal remuneration’) of the previous 52 working weeks and therefore, employers will need to keep track and record the weekly hours worked.

Earlier in the year, with effect from 1 January 2024, HMRC introduced legislation to clarify the definition of a week’s pay for the calculation of holiday pay. 

This ‘normal remuneration’, which can include regular payments such as overtime, regular bonuses and commission, should be used to calculate 4 weeks of annual holiday entitlement.

The remaining 1.6 weeks entitlement can be paid at the ‘basic’ normal rate of pay.  To simplify the calculations, some employers choose to base all holiday pay on ‘normal remuneration’.

5.6 weeks is the legal minimum entitlement of paid holiday.

The link to the Gov.uk guidance on the Holiday pay reforms can be found below, it has some useful examples and explanations regarding the definition of irregular and part-year workers which you may find helpful. 

Holiday pay and entitlement reforms from 1 January 2024 – GOV.UK (www.gov.uk)

As with any contractual changes, we recommend you seek employment law advice or consult ACAS for further guidance.

If you would like to speak to someone about your own payroll and these changes please email us here and we will get back to you.