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Rolled up holiday pay

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Earlier this year, the Government carried out consultation regarding reforms to holiday pay following the Supreme Court judgment in July 2022 in the case of Harpur Trust v Brazel which found that individuals working irregular hours and term-time workers do not accrue holiday at a rate of 12.07% of hours worked.

Instead, it was ruled that employers must provide 5.6 weeks’ holiday to all workers working irregular hours, including those who only work part of the year. Many argued this created a disparity and resulted in part-year workers benefitting significantly more than full-time workers.

Many employers previously paid workers “rolled up” holiday pay - i.e. adding holiday pay to a worker’s usual hourly pay rather than making a separate holiday payment to the worker when they took annual leave. Typically this involved increasing normal pay by 12.07% to reflect the holiday entitlement. However, paying holiday in this manner has been unlawful since the European Court of Justice’s decision in Robinson-Steele v RD Retail Services Ltd in 2006, in which the ECJ expressed concerns that the practice could disincentivise workers from taking annual leave.

Following the recent Government consultation, it has been determined that under the proposed new regulations employers will be entitled to pay part-year workers and workers with irregular working hours (including term-time and zero-hours workers) “rolled-up” holiday pay. This holiday pay entitlement can be calculated using the accrual method based on 12.07% of the hours worked by the individual.

The Government has published a draft statutory instrument (The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023) setting out this change, along with further amendments to the Working Time regulations and TUPE.

The changes set out above are likely to come into force on 1 January 2024. Employers should keep an eye out for the new regulations as they are likely to make the payment of holiday for the individuals referred to above much simpler. Up until the Regulations come into force, employers should continue to calculate and pay holiday in line with the existing rules as confirmed by the Supreme Court in Harpur Trust v Brazel.

A recent Supreme Court case has increased potential liability in respect of any failure to correctly pay holiday pay (please see my recent article regarding this topic), therefore it is as important as ever to ensure that holiday leave and pay is correctly calculated.

If you have any concerns regarding the payment or calculation of holiday pay as the law currently stands, or require any assistance once the new regulations come into force, please contact our Employment Team who will be able to provide further advice and guidance.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.
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