Holiday Pay Entitlement Reforms

As we begin the long awaited holiday season it is a good time for employers to consider how the recent changes implemented  by the government in respect of holiday pay entitlement affect our payroll calculations.

The reforms were updated on 1 April 2024 and give particular focus to how holiday pay is calculated for irregular hours workers and part-year workers.

For leave years beginning before 1 April 2024, holiday entitlement will continue to be calculated in the same way for irregular hours and part-year workers as previously.

However, for leave years beginning on or after 1 April 2024, there is a new accrual method for these types of workers. Holiday entitlement will be calculated as 12.07% of actual hours worked in a pay period. So if an employee works 100 hours in the month they will have accrued 12.07 (rounded to 12) hours of holiday.

Alternatively the guidance has also introduced the rolled-up holiday pay method that allows employers to include an additional amount with every payslip to cover a worker’s holiday pay, as opposed to paying holiday pay when a worker takes annual leave. Again the 12.07% is used, this time to calculate the additional payment. So if the employee was paid £100 that month an additional £12.07 would be added.

The 12.07% is based on the worker receiving the statutory minimum holiday entitlement. If the holiday is greater than this the percentage will need to be adjusted accordingly.

Each method has implications in respect of cash flow and this is an opportunity for employers to consider the best way forward.

For the full guidance, which also covers other subjects such as the calculation of ‘normal pay’ versus basic pay, and how maternity and sick leave affects holiday entitlement please follow the link below.

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