Have you budgeted for increased holiday pay costs?

You probably know that the government has made some significant changes to the Working Time Regulations via the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 which came into force from 1 January 2024 (the new regulations). 

This blog looks at the issue of holiday pay and highlights some issues that you may not have considered or budgeted for.

The original version of the WTRs said that all workers should receive a “week’s pay” when they take a week’s holiday.  A week’s pay is determined by sections 221-224 of the Employment Rights Act 1996 which were not, originally, designed to be used in the context of holiday pay. As a result, many workers only received their basic pay when they went on holiday. Additional payments such as ad hoc overtime, commission payments and other allowances were excluded.  

The mismatch between our domestic legislation and the underlying EU Working Time Directive resulted in a huge amount of litigation. The upshot was that employers had to pay normal hours staff their “normal pay” when they went on holiday, but only in respect of four of the 5.6 weeks' leave. The remaining 1.6 weeks could be paid at basic pay.  

Following the UK’s exit from the EU, the government put in place arrangements to preserve laws derived from the EU into the UK’s domestic legal framework. In the context of holiday pay, and to avoid uncertainty about whether previously binding decisions would still apply, the new Regulations expressly set out the types of payments that have to be included in holiday pay for the purposes of s221-224 of the ERA.  

These principles apply to all workers - including the new category of Regulation 15F workers (casual hours staff or those working under part-year contracts).

Regulation 16 of the WTRs now expressly provides that holiday pay for Regulation 13 leave (four weeks leave available to standard workers) and all holiday for Regulation 15F workers must include the following payments:

• Payments which are intrinsically linked to the performance of tasks that a worker is obliged to carry out under the terms of their contract (such as commission payments linked to personal performance);
• Payments for professional or personal status related to length of service, seniority or professional qualifications; 
• Other payments such as overtime, which have been regularly paid to the worker in the previous 52 weeks. 

It’s not entirely clear whether this list will be interpreted in the light of previous binding caselaw or if it goes further than that.  For example, it could include annual bonuses and other payments such as car allowances. Many businesses have not included these payments and may be storing up future liabilities.

How we can help

We've spent the last few weeks getting to grips with the regulations and have designed a product that explains the rules in a straightforward way and tells financial directors what they must do to comply.

For a fixed-fee of £1500 plus VAT, one of our expert lawyers will:

• Schedule a call with you find out how you are currently calculating holiday and which groups of workers will be impacted by these changes.
• Review the holiday pay clauses for those workers. 
• Send you a bespoke report which analyses whether your workers qualify for the new rules on accrual and pay. We'll also consider any other areas where your approach doesn't comply with the law. We'll provide pragmatic, risk-based advice in the form of a RAG report and help you to decide what approach to take where the law is unclear. 
• Amend your contracts of employment to comply with the new regulations. 
• If you've underpaid staff, advise you about the risks of any back-dated claims and how you can mitigate these.
• Plus, you'll get a comprehensive guidance note (which runs to 18 pages) which explains the new rules, includes FAQs, example pay calculations and flowcharts. 

This is outstanding value for money. Please contact Jenny Arrowsmith or Gordon Rodham if you want to find out more about how we can help you or you'd like to buy the package.