From 1st January 2024 the law changed (The Working Time Regulations 1998) but what does this mean to you and your business and how will it affect payroll processes?
If you engage individuals who work irregular hours, or who work for only part of the year, you need to review your method of calculating annual leave entitlement and holiday pay for holiday years commencing on or after 1st April 2024.
For example, if your annual leave year started on 1st January 2024, the new rules will apply from January 2025.
The idea of the reform is to simplify holiday entitlement and holiday pay calculations for irregular hours and part-year workers. Annual leave and holiday pay are two distinct items.
The definitions of “normal renumeration” are:
- Payments that are intrinsically linked to performance of work e.g. Commission
- Payments relating to professional or personal status e.g. Professional qualifications
- Any other regular payments that have been paid in the last 52 weeks, e.g. Overtime.
Irregular hours and part-year workers definitions
New definitions of these workers have been created, allowing employers to correctly identify the workers and process compliantly.
An Irregular Hours Worker is defined as somebody whose paid hours of work are wholly or mostly variable (Regulation 15F(1)(a)).
A Part-Year Worker is defined as somebody whose contract of employment requires them to work only part of a year and there are contractual periods of at least one week where the worker is not required to work and for which they are not paid (Regulation 15F(1)(b). Part-year workers may have fixed hours during the periods that they do work.
For example, a seasonal worker that picks fruit in the spring and summer but is not contracted or paid to do any work in the autumn or winter, would meet the definition of a part-year worker. Be mindful of education, where teachers/assistants are only required to work 38 weeks of the year due to the school holidays. If they are paid only when they are working (when the school is open) they are to be classed as a part-year worker, however if their annual salary is paid in 12 equal monthly payments over the year, then they cannot be classed as a part-year worker.
Annual Leave Calculation
Irregular hours workers’ or part-year workers’ annual leave entitlement will be calculated as 12.07%* of the hours worked in any specific pay period (Regulation 15B(3)(b)), subject to a maximum of 28 days per annum.
* This is based on the assumption that a worker is entitled to 5.6 weeks annual leave per annum. If they are entitled to more annual leave than 5.6 weeks the percentage will need to be amended.
There is a separate calculation in respect of annual leave for irregular hours and part year workers who are currently on sick leave or statutory leave (Regulation 15C).
Holiday Pay Calculation
Employers can choose to use either:
- Rolled up holiday pay (Regulation 16A)
The amended Regulations now allow employers to pay holiday pay on a rolled up basis for irregular hours and part year workers only, previously rolled-up holiday pay was deemed unlawful under the Working Time Directive.
Where an employer wants to implement the use of rolled up holiday pay they should ensure that the workers’ contracts of employment facilitate this.
Holiday pay should be calculated as 12.07% of total pay in each pay period. The payment of holiday pay should be shown as a separate and distinct amount on the pay slip in addition to pay for the work done in the pay period.
- 52-week reference period (Regulation 16)
If rolled up holiday pay is not paid, holiday pay should be calculated based on average pay during the previous 52-week period (unless the worker hasn’t been employed for 52 weeks in which case such shorter period of employment should be used).
If a worker has not been paid during each of the previous 52 weeks, then the employer can go back further to build up data for 52 weeks, up to a limit of a 104 week period. Irregular hour and part-year workers that receive the 5.6 weeks (a maximum of 28 days) statutory holiday entitlement will be calculated at 12.07% of actual hours worked in a pay period.
Other considerations for annual leave
During the COVID pandemic a rule was introduced during that allowed an employee to carry over any unused leave into the next two years if their work was affected by the coronavirus. From 1st January 2024 workers are no longer entitled to accrue COVID carryover leave and any such leave that has been accrued up to 1st January 2024 can be taken up to 31st March 2024.
Sapphire specialise in the flexible labour market and we have become accustomed to such changes in legislation over the years. As a result, we are in a unique position to advise our clients on the impact of such changes and the practical, step by step changes required to ensure you and your business remains compliant with the ever changing and often complex rules around annual leave.
