New rules on holiday pay and entitlement for casual workers

By Alec Colson

Partner – Head of Employment

01 May 2024

Article Insights

Changes to holiday rules in the Working Time Regulations 1998 (the Regulations) came into force on 1 January 2024. 

Whilst many of the changes to the Regulations are aimed at preserving holiday rights derived from European law following Brexit, significant changes have also been made to holiday rights and pay for workers who do not have regular working hours, or only work for part of the holiday year, such as term time workers. In this article we discuss the changes affecting these workers.

The changes in this area have been made to address the difficulties faced by employers in calculating holiday entitlement and pay for these workers, an issue that was highlighted in the recent case of Brazel v The Harpur Trust.  In that case, a teacher who worked part time for only part of the year was entitled to proportionately more holiday entitlement than her full-time colleagues who worked throughout the year due to the manner in which the Regulations applied to this type of working arrangement.  The new rules are making holiday calculations for these types of workers fairer and more straightforward.

Who do the new rules apply to?

The new rules apply to:

Irregular-hours workers – A worker’s hours will be irregular if, in that holiday year, the number of paid hours that they work in each pay period (during the term of their contract) is wholly or mostly variable for example, casual employees, such as those on zero hours contracts in the hospitality sector.

Part-year workers – A part-year worker is required to work only part of the year and there are periods within that year (during the term of the contract) of at least a week they are not required to work and are not paid.

This may include seasonal workers and some term time only workers.

Employers will need to consider carefully if their workers fall within these new definitions.  Applying the new rules to workers who do not meet these definitions may lead to shortfalls in holiday entitlement and pay.

When will the changes come into effect?

The changes to the holiday rules for part year and irregular hours workers will apply to holiday years starting on or after 1 April 2025.  This means that if the holiday year commenced, for example, on 1 January 2024, the new rules would not apply until the holiday year commencing on 1 January 2025.  The existing rules on holiday entitlement will continue to apply until the relevant holiday year.  Applying the new rules earlier than the correct date could lead to shortfalls in holiday entitlement and pay for affected workers.  Employers should consider taking advice on the risks of applying the rules early before making a decision to do so.

Calculating holiday entitlement under the new rules

Once the worker falls within the definition of irregular hours or part year worker, they are exempt from the normal holiday pay rules which provide that a worker is entitled to 5.6 weeks’ holiday per year and to be paid a week’s pay for each week.  The worker will instead be subject to the new rules.

Holiday entitlement shall be calculated in hours rather than weeks and will accrue on the last day of each pay period at the rate of 12.07% of hours worked in that pay period.  Fractions of hours are rounded down if the fraction is less than 30 minutes, and rounded up where the fraction is 30 minutes or more.

Example from Government guidance: Jill works irregular hours and is paid monthly. Her leave year starts on 1 April 2024. She is entitled to the statutory minimum holiday entitlement only.  In June, she works 68 hours. To work out how much holiday she accrues in June, the Employer will need to calculate 12.07% of 68 hours.

Where an irregular hours or part year worker is on statutory leave (such as maternity leave or similar) or sickness absence, they accrued leave at 12.07% of the average hours worked over the prior 52 weeks. The Government guidance includes several examples of how to calculate holiday entitlement in different scenarios.

How does holiday pay work under the new rules?

Employers will be able to choose from two systems of holiday pay under the new rules:

• They can pay holiday pay when holiday is taken, calculated at the rate of a week’s pay for each week’s holiday.   This is an average of total pay over 52 weeks (disregarding weeks where the worker did not work or was on statutory or sick leave)
• Alternatively, they may choose to pay rolled-up holiday pay. Rolled up holiday pay under the new rules is an uplift of 12.07% to the worker’s remuneration for work done in each pay period. 

Where rolled up holiday pay is used, workers must be allowed to take their holiday, but will not be paid at the time they take it.

There will be a 52-week averaging system to calculate how much rolled-up holiday pay must be paid to workers for periods of sick leave or statutory leave.

The worker can express a preference as to how they receive holiday pay but the decision rests with the employer.

Action Points for Employers

Whilst the new rules on holiday pay are intended to create a simpler system of holiday entitlement and pay for irregular hours and part year workers, prior to making changes to current arrangements, there are various matters that employers will need to consider.

• Careful consideration needs be given to assessing whether staff fall within the definition of a part year or irregular worker.  Records should be kept in relation to how a decision on this matter was reached in case of a challenge and the arrangements should be kept under review to take account of future changes in working patterns.

• Making changes to the way that holiday accrues and is paid may amount to a change to an employment contract. Employers should consider taking advice on making contractual changes to avoid complaints and ensuring any changes to the contract of employment are properly documented.

• Consider whether policies and procedures will require updates to take account of new holiday pay practices.

• If Employers choose to use rolled up holiday pay, they will need to consider what arrangements need to be in place to ensure that they can show that the leave is actually being taken in practice.  Rolled up holiday pay also needs to be marked separately on payslips and planning may be required in terms of amending payroll practices.

Alec Colson is a solicitor and Head of Employment Law at Taylor Walton LLP. He can be contacted on 01582 390470 or via email – alec.colson@taylorwalton.co.uk.

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