Rolled up holiday pay is back!

Ever since the Harpur Trust v Brazel decision was announced, the Government has been looking at ways to simplify holiday pay accrual for irregular workers. New legislation, effective 1st January 2024 will include a return to rolled up holiday pay. This form of paying out holidays was made illegal in 2006 but will now return for term time and irregular hours workers, a move that is likely to be popular with employers. Other changes include an onus on employers to ensure that their employees are aware that they need to take their holiday or it can now carry over to future leave years.

Rolled-up holiday pay will be allowed

Rolled up holiday pay is when holiday is paid out as it it earned. Whilst this method hasn’t been used since 2006, the calculation behind it is more recent as the proposals reinstate the pre-Brazel method of calculating holidays for zero hours workers. This is calculated as follows:

For every hour worked, 12.07% of that hour (a little over 7 minutes) is accrued as holiday pay. With rolled up holiday pay, the holiday doesn’t have to be taken at a time when the person isn’t working, it just gets added to the payslip in the month it is earned. In essence, the holiday pay is received up front by the employee and they aren’t paid when they choose to take time off.

Why 12.07%?

12.07% is the proportion of the year taken up by statutory annual leave (5.6 weeks of statutory annual leave divided by 46.4 working weeks of the year). In other words, statutory annual leave entitlement is 12.07% of hours worked by a worker.

What does this mean for employers?

From 1st January 2024, you can adopt rolled up holiday pay if you choose to do so. If so, the payment should be made as earned. Where you pay monthly, holiday pay for that month would be added to the monthly pay. It should, however, be itemised as a separate line on the payslip.

If you offer a contractual holiday entitlement that is higher than the statutory minimum, you can still offer that to zero hours workers. To do so, adapt this percentage accordingly. For instance, 6.6 weeks would equal 14.54%.

This change will need to be made clear to workers. They would need to be made aware that the holiday pay will appear as a separate line on their payslip and that they will no longer receive paid time off when they are unavailable for work.

Holiday pay should not, however, be ‘absorbed’ into the normal hourly rate. This would effectively worsen someone’s terms and conditions and could cause them to be paid less than the National Living Wage.

Allowing rolled-up holiday pay is a welcome move to help make dealing with holiday pay for casual and temporary workers more straight-forward. 

Records of working time 

The government is planning to remove retained EU case law that requires employers to record working hours for almost all members of their workforce. Currently, the UK Working Time Regulations only require employers to keep adequate records to show that they are complying with the maximum 48-hour week (in relation to workers who have not opted out). In reality, hours will still be recorded for pay purposes so this is unlikely to make a massive difference.

Holidays for part-year workers

The 2022 Supreme Court decision in Harpur Trust v Brazel in which it was held that, under the Working Time Regulations, holiday entitlement for permanent part-year workers should not be pro-rated. That led to them getting 5.6 weeks holiday a year, even if they only work 38 weeks a year. This will now be changed so that you can accrue holidays at 12.07% for the time actually worked in the year. So you can pro-rate on the proportion of the year worked in the same way that you can pro-rate for days of the week worked.