Beware the pitfalls of new holiday pay rules as festival season approaches - Robin Turnbull

It came into effect on 1 April this year and aimed to simplify payroll and holiday pay calculations. Employers should act now to gain the full benefits, avoid underpayments and prevent breach of contract claims.

Previously, irregular workers were entitled to 5.6 weeks’ holiday pay per year, regardless of working patterns. This sometimes resulted in those working fewer hours having greater holiday pay entitlements than regular workers.

The new rules allow an irregular worker’s holiday pay to be proportionate to the number of hours they have worked. Alternatively, they can be paid rolled-up holiday pay, which was previously unlawful.

An employer now has two choices. First, pay the employee when the holiday is taken, reflecting the number of hours taken. Broadly speaking, the weekly pay should be divided by the average number of hours worked per week over the previous 52 weeks. Pay should include other normal payments like overtime and commission.

Where there are no previous weekly payments to consider, a fair representative amount can be gauged, by considering factors such as a worker’s remuneration, comparable work, and the amount offered to the worker.

The second option is rolled-up holiday pay – often the most convenient way to pay irregular workers. Instead of remuneration while on holiday, they receive additional payments during working weeks, which make up the total amount due.

Here, the rate of holiday pay is 12.07 per cent of remuneration per pay period. Employers must ensure this payment is clearly itemised on the payslip, to avoid potential disputes.

However, employers must still be cautious. The provisions serve as the legal minimum and won’t override what has been agreed via a contract. If a contract states a higher holiday pay entitlement or a different way of calculating holiday pay, that will prevail.

Even if the contract doesn’t state how holiday is calculated, there could be an entitlement to established practice. Changing practice without reaching agreement could breach the contract and lead to expensive claims, grievances and industrial action.

Critically, the new rules only apply for holiday years starting on or after 1 April 2024. If yours began before then, you may have to wait until the start of the next holiday year before relying on the new rules.

However, if this is the case, an employer can use the new provisions if employees agree to a contract change to fit the new rules or change the holiday year.

If an agreement isn’t reached, an employer could consider bringing the contracts to an end and offering new terms to fit the new rules.

It is crucial for employers to fully understand and properly implement the new holiday pay rules. By taking proactive steps like those outlined above, employers can benefit from the simplified processes and avoid the potential legal pitfalls.

Robin Turnbull is a Director, Anderson Strathern