There have been a couple of changes recently affecting the calculation of holidays and holiday pay which employers need to be aware of. Here our payroll manager Jayne discusses the impact on employers.

HOLIDAYS 2023/24

If your holiday year runs from 1 April to 31 March and you provide the statutory minimum annual leave entitlement, you may encounter a problem because of how Easter falls in 2024. What’s the issue? 

In 2023, the Easter bank holidays fell on 7 and 10 April 2023. However, this year, the Easter bank holidays fall on 29 March and 1 April 2024, so, if your holiday year runs from 1 April to 31 March, they straddle two holiday years. In practice, if this is how your holiday year runs, it means that there are nine bank holidays in the current holiday year (excluding the extra one in 2023 for the King’s Coronation), but only seven bank holidays in the forthcoming holiday year. The Easter bank holidays in 2025 both fall in April.

Therefore, if you only provide 20 days’ annual leave plus bank holidays for full-time staff, it means your workers will potentially face a one-day annual leave shortfall in the forthcoming holiday year, as that would only total 27 days, not 28 days. To address this issue, your options are to: 

• simply increase “ordinary” annual leave entitlement by one day in 2024/25, so that full-time workers then receive 21 days plus seven bank holidays, or 
• ask your workers to agree to temporarily vary their employment contracts so that, in the current holiday year, they will receive 19 days’ annual leave plus nine bank holidays and, in the forthcoming holiday year, they will receive 21 days plus seven bank holidays – this effectively asks them to carry forward one day of “ordinary” annual leave from 2023/24 to 2024/25 but ensures they receive the same overall annual leave entitlement (28 days) in both holiday years. This will only work though if they all have at least one day of annual leave remaining that can be carried forward. 

If your employment contracts say that annual leave entitlement is 28 days inclusive of all bank holidays, your contract wording already covers the issue, so you just need to honour that wording to ensure that your workers still receive 28 days in both holiday years. 

Note also that this issue also won’t affect you if you have a different holiday year or if you contractually provide more annual leave than the statutory minimum entitlement. 

NEW CLASS OF WORKER – WITH THEIR OWN HOLIDAY PAY RULES

In response to the perceived unfairness created by the 2022 Harpur decision  Regulations set out a new system of holiday accrual for part-year (i.e. term-time only) and irregular hours workers (which will include bank workers, for example). 

The Regulations define these terms as follows:

• “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”.
• “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.”

With effect from the start of a new leave year starting on or after 1 April 2024, their WTR (Working Time Regulations) holiday entitlement will accrue (in hours not weeks) at the rate of 12.07% of the actual hours worked in each pay period, up to a maximum of 5.6 weeks a year.

Employers will be able to choose to either:

• Pay holiday pay when holiday is taken. This is to be calculated at the rate of a week’s pay for each week’s holiday. A week’s pay will be calculated as an average amount of weekly pay in the 52 weeks preceding the calculation date. This should, in effect, produce an hourly rate of holiday pay that reflects the average hourly rate of pay over the last year.
  
  OR
• Pay rolled-up holiday pay. This is paid as an uplift of 12.07% to the worker’s pay for work done in each pay period. This is a simpler calculation than if holiday pay were being paid at the time holiday is taken. Workers must be allowed to take their holiday, but will not be paid at the time they take it.

These workers will also now accrue holiday during periods of sick leave or statutory leave (such as maternity leave), using an average over a 52-week reference period to calculate the amount of holiday accrued.

Full details of the changes can be found on the link www.gov.uk/holiday-entitlement-rights/holiday-pay-the-basics

If you have any queries on how this will affect you, please get in touch with your usual payroll contact.