Holiday housekeeping for 2024

The changes follow the Government’s two post-Brexit consultations on holiday pay reform and will be implemented through amendments to the Working Time Regulations 1998.  In essence, the changes fall into three buckets.  Some will convert EU-derived holiday pay and carry-over rights into UK statutory rights.  Others will preserve the status quo (for example, the Government has dropped its plan to grant a single pot of holiday, payable at a single rate, and to extend the option of rolled-up holiday pay to workers more generally).  Others will alleviate the uncertainty and administrative burden caused by recent case rulings (for example, in relation to record-keeping and part-year workers’ entitlements).

What’s clear, however, is that this is not the end of the story.  The Government intends to “consider more fundamental reforms to the rate of holiday pay”. So, for employers, it’s a matter of watch this space, although whether such reforms will materialise if there is a change of government remains to be seen.

Housekeeping and planning for 2024 

Here’s what you can be doing to prepare.

Ahead of 1 January 2024: 

• Check that your pay rate for Regulation 13 holiday (the EU-law derived four-week entitlement) factors in the new statutory components of “a week’s pay”, such as commission, seniority allowances and regular overtime payments. Provided your approach is already aligned with ECJ case rulings on “normal remuneration”, this should not raise any concerns.
• Check that your processes allow workers to carry over into the next holiday year: (i) any part of the 5.6 weeks’ holiday that they can’t take due to being on maternity or other statutory family-related leave; and (ii) up to four weeks’ holiday that they can’t take due to sick leave, provided that they use this within an 18-month cut-off period. 
• Ensure that your contracts and policies have clear “use it or lose it” provisions in respect of statutory holiday and consider the need for further communications during the year to remind workers of their outstanding holiday entitlement and to encourage them to take this.

Ahead of holiday years beginning on or after 1 April 2024:

• Plan to implement a new holiday accrual system for your workers who work irregular hours or for only part of a year, to give them holiday entitlements in proportion to the hours that they work. 
• Consider whether to adopt a system of rolled-up holiday pay for these workers.  Conduct a cost impact analysis to determine whether this would cost you more (given the required 12.07% supplement on all pay) than paying statutory holiday pay.  Note that you must still give workers the opportunity to take their statutory holiday, even if rolled-up holiday is used.

In respect of any proposed changes:

• Consider whether these can be implemented by simply updating policies and notifying workers, or whether contractual terms will need to be varied and a prior consultation process conducted.  If contractual variation is necessary (for example, to introduce rolled-up holiday pay), consider how to approach this in a risk-managed way.

On an ongoing basis:

• Your holiday pay obligations are owed to any “workers”, so identifying your workers correctly is key.  If you engage self-employed contractors who don’t receive holiday pay, assess whether they could legally be workers, having regard to the working relationship in practice rather than just the documentation, and keep this under review. Worker status litigation shows no signs of abating, and misclassification puts you at risk of holiday back-pay claims and significant termination pay liability.

Click here for our more detailed briefing on all changes and their impact for employers.