On 8 November 2023, the UK government announced proposed changes to the calculation of holiday pay for employees with irregular working hours and part-year contracts. These changes mark a significant shift from recent developments, following the Harpur Trust v Brazel case.

Which employees will be impacted by the change?

For full-time employees, or part-time employees with regular hours, nothing will change. These proposed changes will only effect the following groups:

1. Irregular Hours Workers

Irregular hours workers are individuals whose paid hours vary significantly in each pay period. This variability can result from factors such as fluctuating work schedules or seasonal employment.

2. Part-Year Workers

Part-year workers are those whose contracts stipulate employment for only part of the year, and they are not obligated to work or be paid for at least a week of each year. This category often includes seasonal workers or those with specific contractual terms tied to particular periods. An common example of part-year workers include those who work in the education sector on term-time only contracts.

The Background

The Harpur Trust v Brazel case triggered an end to the use of ‘rolled-up holiday pay’, following a tribunal outcome which stated that part-year workers were entitled to the same holiday as those who work all year round. Consequently, in theory, the workers would also be entitled to the same holiday pay, despite working significantly less hours across the year than a full-time employee.

This approach faced criticism for its complexity and lack of common sense. The recent confusion prompted the government to reconsider its stance, resulting in a proposed return to the ‘rolled-up holiday’ approach.

The Current Situation: Calculating Holiday Pay

Currently, employers calculate holiday pay for part-year employees by considering a 52-week reference period, averaging the pay over the entire period. This was increased from 12 weeks to 52 weeks following changes implemented by the Good Work Plan.

This method is often time consuming, particularly for organisations in industries such as hospitality who rely heavily on employees opting for casual contracts of employment to support the fluctuations in customer footfall.

The Proposed Changes to Holiday Pay Calculations

The proposed changes suggest a return to the ‘rolled-up holiday approach.’ It is believed that these changes in holiday pay calculations will start from 1 January 2024.

It is proposed that employers will be able to pay 12.07% of an employee’s hours worked without the need for a 52-week reference period or complicated calculations. This simplification aims to streamline the holiday pay process for employers, making it more straightforward and efficient.

Why Changes to Holiday Pay Calculations will Help Organisations

The proposed changes aim to alleviate the confusion surrounding holiday pay calculations for irregular hours. By reverting to the ‘rolled-up holiday approach,’ employers can benefit from a more straightforward method, potentially reducing administrative burdens. This change could enhance operational efficiency and mitigate the risk of costly tribunal claims associated with miscalculated holiday pay.

What Organisations Need to do

Prior to the proposed changes coming into effect in January 2024, employers should consider reviewing their current contracts of employment to determine if there is scope to change the holiday pay calculation or whether this will require consultation with employees. If the changes are implemented in the new year, employers may need to then hold consultations with affected employees in order to change their terms and conditions.

The information provided in this article is based on proposed changes as of November 2023. Employers are advised to stay updated on any further developments and seek HR advice for any specific queries.

To stay up to date with the latest HR news, join PeopleStreams today, our free HR community platform.