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Employers must look beyond holiday pay reform headlines

Businesses are being urged to delve into the detail of the new Employment Rights Regulations, because they go far beyond the accrual of holiday and rolled up pay that are grabbing the headlines.

Businesses are being urged to delve into the detail of the new Employment Rights Regulations, because they go far beyond the accrual of holiday and rolled up pay that are grabbing the headlines.

“The aim of the Regulations is to create more straightforward rules for employers managing irregular and part-year workers by removing confusion and preventing over and under payments in comparison to full time or fixed hour workers,” says the CEO of HIVE360, David McCormack.

“But there are a number of other regulations that the guidance details, including defining workers’ categories, base holiday pay, calculating accrual of maternity and family related leave and sickness that employers must also comply with.”

The UK Government introduced the changes to the Working Time Regulations effective from 1 January 2024, with the aim of simplifying holiday pay calculation and accrual for ‘irregular hours workers’ and ‘part-year workers’, as well as to provide clear guidance around which workers fall into these categories.

“For most employers, and workers, the new regulations are a welcome change and long overdue,” says McCormack. “They bring clarity and transparency to an area of employment law that was shrouded in grey thanks to the Harpur Trust case of 2022. For others it may seem like an administrative nightmare, but what cannot be disputed is that change was needed and has now finally been delivered.”

The government has released guidance to Holiday Pay and Entitlement document that provides a great deal of information and working examples of scenarios and calculations, but this is “pretty complex and will need careful analysis to ensure employers do not fall foul” according to McCormack.

From 1 January 2024, the new Employment Rights Regulations 2023:

  • Define categories of ‘irregular hours’ and ‘part-year’ workers in relation to the new accrual method and rolled up pay.
  • Allow holiday to accrue based on hours worked, capped at 5.6 weeks.
  • Base holiday pay on an hourly rate calculated from average weekly pay.
  • Allow leave to be carried forward in certain circumstances – the number of days and the circumstances are detailed in the guidance.
  • End the provision of leave being carried over due to COVID 19
  • Introduce details around calculating accrual in respect of maternity, family related leave and sickness.
  • Allow holiday pay to be ‘rolled up’ and paid in regular pay periods.

“Certainly, the new rules are a welcome change for employers and workers alike on several fronts, but the impact will depend on the status of the workforce as well as the current holiday arrangements,” he adds. “However, it’s fair to say that rolled-up holiday pay will simplify administration and costs for those that choose to go down this route.”

HIVE360 is working with businesses to help them prepare for the change and impact of the Regulations: “Whilst a positive change for temporary workers, employers may be feeling ill-prepared and not know where to start. It’s imperative for employers to be diligent in understanding and executing these changes, to ensure compliance and fairness for all their workers, otherwise they run the risk of losing workers because of a lack of flexibility, “ McCormack says.

“Whilst these changes came into force at the start of this year, it’s important to note that some of the most significant will only apply to annual leave years beginning on or after 1 April 2024. One of the biggest shake ups means that ‘rolled-up’ holiday pay for these workers will now be allowed and recognised – a 12.07% uplift to regular pay in each pay period.

“For irregular hours and part year workers, holiday will accrue at 12.07% of hours worked each pay period, capped at 28 days. Holiday pay will be based on average weekly earnings, ignoring unpaid weeks.” 

How can employers prepare for Holiday Pay Reform 2024?
HIVE360 has prepared a checklist as part of its support for employers:

  • Audit your workforce and contracts to identify which of your workers qualify as irregular hours and part-year workers under the new regulations.
  • Check the holiday year for these workers – if you currently run a Jan to Dec holiday year you must decide if you wish to stick with this or change to an April – March year in order for rolled up holiday pay to kick in this year.
  • Ensure that your payroll system can manage holiday accrual under the new rules, rolled-up holiday pay and carry-over of previous leave and check that your current holiday pay processes are compliant with the new reference period.
  • Review your internal staff training to ensure that they all understand the new regulations and can discuss the impact with both workers and clients.
  • Communicate the changes clearly to eligible workers.

Depending on their current holiday year, employers will have between three and 15 months to prepare for rolled up holiday pay and the new holiday pay calculations, but, irrespective of a businesses’ own specific implementation date, they must ensure staff have prepared accordingly for such big changes.

For additional Government information on the Reforms, see: Holiday pay and entitlement reforms from 1 January 2024 – GOV.UK (www.gov.uk) and HIVE360’s guidance: Holiday Pay Reform 2024: Get Ahead of the Curve | HIVE360. To help calculate the amount of entitlement available, use the calculator on the Gov website.

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