Last updated May 2024
Welcome to this HR Blast. As we approach holiday season it’s time to address a few common HR Headaches. But, help is at hand if holiday issues are vexing you!
As of April 2024, there are several updates that may apply to how you manage employee’s holiday:
- The return of 12.07% calculation for paying out holiday for 0 hours or part-year employees.
- Carrying forward unused holiday is supported by UK law
- ‘Normal pay’ calculations are updated and should be used for holiday
‘Rolled up’ Holiday Pay
The government has reversed its decision to remove rolled up payment of holiday as a % for 0-hour and part year employees. This means employers can once again pay out holiday accrued by 0 hours or part year workers at a rate of 12.07%, on top of their hourly rate.
The figure of 12.07% is used as it represents 5.6 weeks entitlement to statutory holiday. When paying out rolled up holiday, the payment should be made in the same period that the hours were worked.
If your company’s basic holiday entitlement is higher than the statutory entitlement of 5.6 weeks, the calculation for % of holiday pay may be greater. This is important because you do not want to treat part-time workers less favourably than your permanent staff members.
The new legislation applies to ‘irregular hours workers’, which in practice means employees with no fixed hours, most commonly referred to as ‘0 hour’ workers. It also applies to ‘part year’ workers, who work under a permanent contract that does not require them to work for part of the year. There must be at least 1 week per year when they do not work and are not paid to meet the definition. Common examples of part year workers are term time only school employees.
We expect this will be a popular decision with employers and employees alike, with feedback from both parties on the impracticalities of accruing and booking holidays for irregular workers. However, don’t rush to change this process without speaking to your employees first. Check contracts of employment to establish whether a variation to terms is required and consult appropriately before making the change. If your employees do not want to change their holiday pay, you can continue to allow them to accrue and book their holiday.
Carrying forward unused holiday is supported by UK law
Typically, employees are required by their contracts to use or lose their holiday in the holiday year. However, there are exceptions which will allow employees to carry forward their entitlement. These exceptions were previously supported by EU case law, however from the 1st April 2024 this provision is now covered by the UK’s Working Time Regulations.
All employees (permanent or 0-hours) are entitled to carry forward their holiday to the next holiday period, if they have been unable to take annual leave due to any of the following reasons:
- The employer refused to or failed to pay the employee’s holiday
- The employer has not given the employee a reasonable opportunity to take the holiday
- The employer fails to remind employees that holiday is ‘use it, or lose it’
- The employee has been on long term sick
- The employee has been on maternity leave or other family related leave i.e. adoption leave
Typically, employees have 18 months to use any leave they have taken forward.
In practice, not a great deal has changed as the UK ruling is very similar to the EU ruling. However, it does provide greater clarity and consequently employers may be more likely to be challenged by their employees on the practice of ‘use it or lose it’.
To ensure holiday is being used for employee’s wellbeing, and to enable employers to enforce a use it or lose it policy, you need to make sure the following is in place:
- Employees must receive regular reminders of what their holiday entitlement is, and when they need to use it by.
- Employers need to publish clear guidelines within the holiday policy, stating that holiday will be lost if not used.
- Employees who are failing to use their annual leave should have this addressed by their line manager. The line manager must document the conversation in writing to evidence they have asked the employee to take annual leave.
- If all the above fails, employers may consider requiring employees to take annual leave in specific periods. If you do this, ensure you provide adequate notice of twice the amount of time that you want the employee to take, i.e. 2 weeks’ notice for 1 week’s mandatory holiday.
- Finally, remember that what employers do is equally as important as what is written in contracts or policies. If your policy states that annual leave will be lost, but you have allowed employees to carry it year on year, this could be considered custom and practice and result in employees believing they are entitled to carry forward the leave. Stick to your policy!
If you apply all of the above measures, you will be able to confidently apply the ‘use it or lose it’ rule and ensure that employees are not carrying forward unmanageable holiday allowances.
Remember, this does not apply in the same way to maternity, family leave, and long-term sickness cases. If you would like advice on managing holiday in these circumstances, please contact a member of the Jaluch team.
‘Normal pay’ calculations are updated and should be used for holiday
Again, this is an update to employment practices currently covered by EU case law. As of April 2024, the UK has issued its own guidance on what constitutes ‘normal’ pay for the purpose of holiday pay, and it includes any ‘regular’ payments such as commission, overtime, uplifts and bonuses.
While not a great deal has changed in practice, the recent publicity around the UK legislative updates is bound to generate queries from your employees, so we can help you prepare.
This is a bigger topic, so we have dedicated a separate article to this practice: Understanding holiday pay, overtime, commission and bonus
Are you confused?
To close, here are some examples of common holiday confusions that come through to our advice line:
Holiday while sick – not all employers are aware that if an employee is sick while they are on holiday, providing the employee follows the correct absence notification procedures they are entitled to have their absence logged as sick and get their holiday back to take another time.
Holiday and maternity 1 – many employers still get confused about whether employees should receive bank holidays while on maternity – the general consensus is that they should, on the basis that to not do this, you would be treating them differently.
Holiday and maternity 2 – we sometimes have issues relating to taking holiday before/after maternity e.g. it may cross a holiday year and many people are unsure whether to allow them to move the holiday to another holiday year – which is the most sensible thing to do. We do still get some employers trying to pay out holiday accrual while people are on or returning from maternity leave. We never recommend this unless the employee is leaving.
Holiday and long term sickness – long term sick employees should accrue holiday while they are off sick. As per statutory entitlements, a ‘regular worker’, someone with fixed contractual hours, is entitled to carry forward 20 days only, whereas an ‘irregular worker’, often referred to as 0-hours employees, is entitled to carry forward the full 28 days of the statutory entitlement. We usually recommend allowing them to accrue their normal amount of holiday entitlement, rather than just the statutory (if this is less). If you only want them to accrue statutory, make sure your contract of employment includes the necessary clause.
And for an employee off sick for more than a year? Holiday is accrued for all long term sickness and is carried forward for 18 months. Therefore, on the point of their return, or on termination of employment, all holiday accrued will need to be given (or paid in lieu if their employment is terminating).
Holiday and notice periods – People always get confused about whether holiday should be paid for the duration of someone’s notice. The answer is ‘yes’ if they work their notice or ‘no’ if they are paid in lieu of their notice. This is because holiday is meant to accrue in respect of time worked and clearly if you are paying someone in lieu of their notice they aren’t working.
Holiday calculations for part timers – always an area designed to cause a headache! To simplify things, instead of discussing weeks and days and getting into a twist over what happens when a bank holiday strikes, we recommend you calculate the holiday for part time workers on an hourly basis. In your calculation include both holiday and bank holiday entitlements.
Forced time off! – We don’t see employers using their right to make people take holiday much. This could be used far more and is sometimes a missed opportunity, particularly if you have an employee who is clearly tired and working increasingly slowly. All the employer needs to do is give them notice of forcing holiday that is double the length of the holiday i.e. two weeks’ notice for one week of holiday.
A few top tips to finish with:
- Get your employment policies in order so that all your managers and workers know what is and is not permitted. Include clauses about holiday pay and taking holiday in your maternity policy, sickness policy, termination of employment policy and health and wellbeing policy.
- Check out what the cost will be when you start including commission/extra payments in holiday pay.
- Check out what the cost will be when you start providing extra holiday hours in respect of overtime worked.
- Double check that none of your part time staff are receiving full-time bank holiday entitlement. This is a common calculation error.
Need any support or advice with holidays or employment contracts and policies? Call us and our advice team will be delighted to help.
Interested in training for your line managers in managing absence or performance?
The information contained within this article is for general guidance only and represents our understanding of employment and associated law and employee relations issues as at the date of publication. Jaluch Limited, or any of its directors or employees, cannot be held responsible for any action or inaction taken in reliance upon the contents. Specific advice should be sought on all individual matters.