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Most employers yet to take action on holiday pay reforms

Discover why more than two-thirds of employers are yet to implement changes to holiday entitlement and pay, despite recent legislative updates.

More than two thirds of employers (69%) are yet to take any action to change how holiday entitlement and pay is calculated in their organisation, more than a month after the new rules came into effect. This is according to a new poll.

The amendments to the Working Time Regulations, which has the most significant impact on ‘irregular hours’ and ‘part-year’ workers, a substantial section of the UK workforce, applies in respect of annual leave years starting on or after 1 April 2024. 

According to WorkNest’s findings, four in ten employers have not taken any action because they still do not know if this affects their workers and almost a quarter (23%) say they have not made any changes and do not intend to.

A big issue for employers

2024 has been a bumper year for employment law reforms so far, with a raft of legislation updates and changes coming into effect last month. WorkNest has found that along with revised rules on the right to request flexible working, it is the amendments to holiday pay and entitlement that employers say are impacting them most. At a recent webinar hosted by WorkNest about the latest legislative changes, more than half of the questions submitted were related to the new holiday pay entitlement and calculations.

A lack of guidance

A fundamental issue which may explain why employers are struggling to establish the impact of the new holiday rules on their business, is the lack of clarity around the definition of the newly introduced categories of ‘irregular hours’ and ‘part-year’ workers. Whilst the amended legislation contains express definitions of these terms and the Government has published guidance to be read alongside the amended legislation, employment law specialists at WorkNest say that this has raised more questions than answers, with the precise scope of these terms being in considerable doubt.

Employers themselves are also saying they need more help. According to the WorkNest polling, almost six in ten employers (59%) agree that further guidance is needed to understand how the amended legislation works in practice.

Employers at risk

Lesley Rennie, Principal Employment Law Solicitor at WorkNest warns that the ongoing uncertainty creates a real prospect of employers miscategorising workers and as a result, incorrectly calculating holiday pay and entitlement, which could lead to breach of contract, unlawful deduction from wages or constructive dismissal claims, whilst doing nothing also puts employers at risk. She said:

Although the holiday pay and entitlement reforms for irregular hours and part-year workers came into force for those businesses with a holiday year beginning on or after 1st April 2024, our survey shows that many employers are still grappling with the new concepts. 

“Calculating holiday entitlement and pay has been a notoriously tricky and a highly complex area for many years now and in some ways, the introduction of these new categories of worker and associated holiday rules  are to be welcomed as they signal the return of the much favoured 12.07% accrual formula which many employers had continued to apply. But the ambiguities around the definition of the new categories of worker – the “irregular hours” or “part-year” worker – is confusing for employers and adds a further layer of complexity. For example, the definition of “irregular hours worker” is centred around the worker’s hours being wholly or mostly variable under the terms of their contract but fails to specify if this means the written contract or the reality of the situation. Often, the two are quite different. Moreover, what is meant by ‘wholly’ or ‘mostly variable’?  Is there a minimum % of variability which is required? And what about workers who work overtime – does that mean they are an irregular hours worker as a result? These are just some of the many unanswered questions arising as a result of these reforms.

“Unfortunately, this uncertainty will continue until either the Government further updates its guidance or there is case law specifically dealing with the meaning of these definitions. In the meantime, employers must proceed on the basis of their best assessment, which is a far from ideal situation given that this risks non-compliance and in turn legal consequences for employers. Whilst we await further Government or judicial guidance on the meaning of these terms, we urge employers to seek expert help if they are unsure how to proceed. Even if your holiday year has already restarted on the 1stApril, it is not too late to take action.”

Lesley has the following advice for employers yet to act:

  • As an absolute priority, audit your workforce to identify which workers, if any, could be classed as being an ‘irregular hours’ or ‘part-year’ worker. Advice should be sought on any specific cases where it is not immediately clear whether a worker falls within either of these categories.
  • Review your contracts and policies and assess whether you need to make amendments to align with the law. Check your contracts and policies clearly set out what type of leave is taken and how it will be paid. Remember if you need to change existing employees’ terms and conditions, you will likely need to secure their agreement which may entail consulting with them. 
  • Establish how you are going to keep track of leave taken and yet to be used. It can be daunting to make changes to the status quo, for example amending existing leave tracking and payroll software, but often these changes will need to be made to accommodate the new rules in respect of “irregular hours” and “part year” workers and to properly apply the carryover rules contained in the amended legislation. 
  • Put systems in place to remind your workers to use accrued leave or lose it so that you avoid claims that you neglected to give workers a reasonable opportunity to take holiday or failed to encourage them to do so. Make sure that you take account of workers on sickness absence and statutory leave and ensure that mechanisms are in place to manage their carry over of untaken holiday in line with the legislation. 

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