Holiday pay: what are the new rules and what do employers need to do to comply with them?

New regulations on holiday pay and entitlement came into force on 1 January 2024. The new rules were expected to reverse the outcomes of the Supreme Court’s decision in Harpur Trust v Brazel and simplify the law in this area. However, the position is not as simple as that and employers now have new issues to work through. 

What are the new rules?

The new rules:

• Create a new class of workers: irregular hours and part-year workers (“Regulation 15F workers”)*
• Create a new method of accruing holiday for Regulation 15F workers*
• Allow employers to roll-up the holiday pay of Regulation 15F workers*
• Set out new carry-over provisions (relevant to all workers from 1 January 2024)
• Set out a new definition of normal pay, confirming what payments need to be included when calculating holiday pay e.g. commission etc. (relevant to all workers from 1 January 2024)

*applies for holiday years that begin on or after 1 April 2024.

The government have also issued guidance alongside the new regulations, which is non-statutory and therefore non-binding.

What do employers need to do next?

Employers will need to assess their workforce to consider who is a Regulation 15F worker and who is not. The new definitions are however far from clear and, in some cases, employers will need to take a pragmatic view on how best to categorise workers until we receive further clarification from the courts and tribunals (which could take some time). 

Whilst the government's guidance is intended to provide further explanation and example calculations to support employers in calculating holiday accrual and pay, this also lacks clarity and contains calculations that are at odds with the legislation. 

Where an employer wrongly classifies a worker and, for example rolls up their holiday pay, there could be potential cost consequences spanning a number of holiday pay years. Because of the new rules relating to carry-over, there's now a greater risk that employees could bring claims going back much further than before. Therefore, it’s going to be important to take advice to understand any such risks and liabilities.

Where a worker does meet the definition of a Regulation 15F worker, contracts will need to be updated to reflect the new methods of holiday accrual and pay (including rolling-up holiday pay where relevant). This will likely involve a consultation process with employees (and unions, if applicable).

For all workers, employers will need to check that the correct payments are being included in holiday pay calculations to comply with the new rules (and avoid claims). Furthermore, employers will need to understand the new rules on when holiday can be carried over from one year to the next and ensure policies and contracts reflect these changes. Again, contracts will need to be updated and this may require consultation.

How we can help

We’ve developed a fixed-price holiday pay tool, to support you and your organisation in navigating these rules and risks.  

For a fixed fee of £1,500 plus VAT we will provide you with:

• A briefing call to understand which workers this relates to and your current arrangements
• A review of your holiday pay clauses for those workers
• A comprehensive guidance note answering key questions about the new rules, including example calculations and flowcharts 
• A bespoke report which sets out:
  • Analysis on who is a Regulation 15F worker and who is not
  • Options and a risk-based approach where there are uncertainties
  • Clarity on the steps you need to take to be compliant with the new rules
  • Suggested amendments to your contracts of employment
  • Advice on the risk of any back-dated claims and how to mitigate these

For more information, please click here or contact Jenny Arrowsmith or Gordan Rodham.

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