Employment Law: Annual Leave Changes

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Several significant changes came into force on 1 January 2024 that affect the statutory annual leave and pay entitlements.

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Several significant changes came into force on 1 January 2024 that affect the statutory annual leave and pay entitlements. The important highlights are listed below. The government has published a guide to these changes, which can be found on gov.uk, that provides further details and various scenarios with pay and leave calculations.

1. Carryover of Leave

Starting 1 January 2024, workers can typically carry over a maximum of 8 days into the next leave year, subject to employer agreement. Notably, if a worker has more than 28 days of leave, the employer may permit the carryover of additional untaken leave, subject to the employment contract or company policies.

Workers unable to take their statutory holiday entitlement due to maternity or family-related leave can carry forward up to 28 days into the following leave year. Similarly, workers who were off sick and could not use their annual leave, are entitled to carry forward up to 20 days and must be taken within 18 months from the end of the leave year.

Employers are obligated to allow workers on maternity or family-related leave to carry over their entire holiday entitlement to the following year.

2. Leave Affected by COVID-19

Until 31 December 2023, workers could carry over untaken leave into the next two years if their work was impacted by the coronavirus. However, from 1 January 2024, workers can no longer accrue coronavirus carryover leave. Instead, they must take any leave accrued before 31/12/2023 by 31 March 2024. Workers whose employment ends on or before 31/03/2024, have the right to claim payment in lieu of any remaining entitlement affected by the pandemic.

3. Holiday Pay Calculations

All full-year workers, excluding the self-employed, are entitled to 5.6 weeks of paid statutory holiday leave annually. This entitlement has not been changed. Out of this, four weeks must be paid at the worker’s “normal” rate, including regular payments like overtime, bonuses, and commissions. The remaining 1.6 weeks can be paid at the “basic” rate of pay.

The regulations now specify components that must be included in the “normal” rate of pay calculation. These include payments linked to task performance, professional or personal status, and regular overtime payments made in the 52 weeks preceding the calculation date.

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Effective from 1 April 2024, part-year and irregular hours workers are entitled to up to 5.6 weeks of paid statutory holiday leave per year, calculated based on actual hours worked using the 12.07% accrual method. Employers opting for rolled-up holiday pay must ensure that it is calculated at 12.07% of the worker’s total pay in each pay period.

4. Rolled-Up Holiday Pay

A novel inclusion in the regulations is the provision for rolled-up holiday pay, applicable exclusively to irregular hour and part-year workers for leave years starting on or after 1 April 2024. This method allows employers to include an additional amount in each payslip to cover a worker’s holiday pay rather than paying when the worker takes annual leave.

The calculation for rolled-up holiday pay is set at 12.07% of a worker’s total pay in a pay period. Employers must communicate any intention to use rolled-up holiday pay to workers, marking it clearly on payslips. Importantly, this pay is separate from the worker’s normal salary and must be at or above the National Minimum Wage.

5. 52-Week Reference Period

For workers with irregular hours or part-year employment, the 52-week reference period is used for calculating holiday pay. This method considers an average from the last 52 weeks in which the worker has worked and earned pay. If a worker has not been employed long enough to accumulate 52 weeks’ worth of pay data, the employer should use the complete weeks available.

In situations where a worker takes leave before completing a week of employment, this reference period is not used. Instead, the employer must pay an amount that fairly represents the worker’s pay for the time on leave, considering factors like the worker’s job pay, previous earnings, and comparable roles.

6. Looking Back Period

To prevent employers from looking back more than two years to gather 52 weeks of pay data, there is a cap on how far back employers should look. Employers should only count back as much as needed to achieve 52 weeks of pay data. Weeks preceding the 104 complete weeks (two years) before the first day of the worker’s holiday are not considered.

For workers employed for less than 52 weeks, the reference period is shortened to the number of weeks of their employment. This reference period should only include weeks for which the worker was paid, excluding weeks without remuneration.

7. Definition of a Week

The definition of a “week“ is crucial in the holiday pay reference periods. As per the Employment Rights Act 1996, a week starts on a Sunday and ends on a Saturday. The holiday pay reference period starts from the last complete working week ending on or before the first day of leave, aligning with the worker’s payday.

Exceptions exist for workers whose pay is calculated weekly with a week ending on a day other than Saturday. In such cases, the week is treated as ending on that specific day.

8. Part-year and Irregular Hours Workers

The amendments have introduced the notion of part-year workers and irregular hours workers. Many provisions apply specifically to these types of workers.

A worker is an irregular-hours worker, in relation to a leave year, if under the terms of employment, the number of paid hours that the worker will work in each pay period during the terms of employment in that year is wholly or mostly variable.

A worker is a part-year worker, in relation to a leave year, if under the terms of employment, the worker is required to work only part of that year and there are periods within that year of at least a week during which the worker is not required to work and is not paid. Periods of sick leave or statutory leave (such as maternity leave) are ignored.

If you have any queries about these changes, you can check the www.gov.uk website or feel free to contact Lawgistics.

Kiril MoskovchukTrainee SolicitorRead More by this author

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