The Holiday Pay rollercoaster has seen many ups and downs over recent times. The Harpur Trust v Brazal case caused alarm amongst many employers, when the reality of that case was that there were specifics to that case which did not relate to the vast majority of employees.

Holiday Pay calculations have gotten more complicated over time. The Government issued a consultation document earlier in the year to streamline holiday pay calculations. They have now issued draft regulations proposing significant changes to the calculation.

Currently, holiday pay is calculated at 12.07% of salary for salaried employees and an average of pay over a 52-week average for employees who are part-time, on zero-hour contracts or irregularly paid.

The 52-week average has caused many problems as, if there are any gaps in employment; employers must go as far back as 104 weeks to establish 52 weeks of pay to get the average as the basis for holiday pay.

Many employers have continued to pay holiday pay at 12.07% for employees for whom they should have used the average method. Although not correct, it is perfectly understandable why this basis was chosen.

Now, there is light at the end of the tunnel. The draft regulations propose the following;

  • The 52-week reference period is to be abolished, and holiday entitlement for employees with irregular hours/part-time workers/zero-hour employees will be calculated at 12.07%
  • All employees will receive four weeks of normal pay and 1.6 weeks of basic pay. The expectation is that employers will calculate holiday pay per pay period at 12.07%. Holiday entitlement will be calculated at the end of each pay period rather than monthly to give flexibility to the employer
  • Rolled-up holiday pay will be allowable but only for employees with irregular hours/part-time workers/zero hours workers

This is a positive move, as it eliminates any ambiguity about the calculation, although a very small number of employees may lose out (by small amounts).

Holiday pay will be calculated at 12.07%. Employers can choose when the holiday is calculated; it can be calculated for each pay period.

The Regulations are showing a start date of 1 January 2024 (this is principally to do with the repealing of the Covid Regulations and accrual of Covid carry-over leave); however, the reality is that the new rules for workers with irregular hours, part-time employees and zero hour contract employees will apply to leave years beginning 1 April 2024.

The proposed changes will apply to England, Scotland and Wales but not Northern Ireland.