Changes all around for Holiday Pay

Underpaid Holiday Pay

The Supreme Court handed down an important decision for employers about claims for underpaid holiday pay in the case of Chief Constable of Police Service of Northern Ireland v Agnew. It has made it clear that a gap of more than three months between any two deductions would not be enough to break the series and employees can therefore claim further back.

What this means is that a tribunal will now simply look at whether a number of underpayments, as a matter of fact, form an ongoing ‘series of deductions’, meaning employees can claim in respect of all of the deductions in the series.  In Agnew all of the deductions were for the same reason, i.e. holiday had been calculated at basic rate excluding overtime and therefore were all part of a series.

Do note though that in Great Britain (unlike Northern Ireland where the claimants in Agnew worked) there is a separate limitation restricting a claim for a series of deductions to no more than two years, putting a limit on claims.

This is an unhelpful case for employers as their exposure to possible historic holiday pay claims has increased. If you haven’t undertaken a review of your holiday pay policies recently to ensure that your approach is up to date, it is worth doing so now to gain an understanding of any potential exposure to claims.

A Reversal of Harpur Trust v Brazel

The Supreme Court ruling in the case of Harpur Trust v Brazel caused significant difficulty in the calculation of holiday for part-year workers, casual workers, agency workers and others with irregular or unpredictable working patterns.

Before the ruling, many employers used the 12.07% approach for calculating holiday pay for workers with irregular hours.  However, in Harpur Trust this practice was expressly found to be non-compliant with the Working Time Regulations for part year workers and it was held that the 5.6 weeks’ annual leave entitlement under the WTR 1998 should not be reduced pro rata for “part-year workers”.

This ruling has led to a situation where some workers on part year contracts receive proportionately more paid holiday, relative to the hours they work, than some workers on full time contracts.

As such, the Government has now confirmed that for holiday years from 1 April 2024, irregular hours and part-year workers will accrue annual leave entitlement on the last day of each pay period at the rate of 12.07% of the number of hours that they have worked during that pay period, subject to a maximum of 28 days per year.

This change is likely to be a significant relief to employers especially those with significant numbers of irregular and part year workers such as in the Education Sector.

If you updated your contracts for irregular hours and part-year workers following the Harpur Trust v Brazel ruling, you may now wish to revisit this point. Do get in touch if we can assist you with this.

‘Rolled-up’ Holiday Pay is back

Hugely significant legislation has now been laid before Parliament that will fundamentally change how holiday entitlement can be calculated for part year workers, and anyone else who works irregular hours.

The practice of rolled up holiday pay, effectively outlawed since 2006, will be permitted once more from 1 January 2024.  The way ‘rolled-up’ holiday pay works is that, rather than accruing holiday entitlement, a worker can have an additional element of pay added to their standard pay at the end of each pay period.

The Government launched a consultation on 12 May 2023 whereby it was initially proposed to introduce ‘rolled-up’ holiday pay for all workers and employees, whether full time, part time, or some other arrangement. However, this proposal for universal rolled up holiday pay was not popular with only 12% of respondents agreeing that rolled-up holiday pay should be introduced as an option for employers in relation to all workers.

However, feedback was received from stakeholders who suggested the main identified benefits of ‘rolled-up’ holiday pay were only applicable in relation to irregular-hours and part-year workers, rather than full timers and those with fixed part time hours, for whom there would seem to be little benefit to ‘rolled-up’ holiday pay and a higher risk of disincentivising leave. As such, the proposal to introduce it for part-year workers and those who work irregular hours seems to make sense.

The proposal that will now be taken forward is that employers can calculate holiday pay for those workers at a rate of 12.07% of the pay earned during a pay period, to be added to the worker’s pay, instead of them accruing leave.  This figure is derived from the fact that 12.07% is 5.6÷46.4, where 5.6 is the statutory annual leave entitlement and 46.4 is the number of working weeks in a year after statutory annual leave is deducted.

If you wish to introduce ‘rolled-up’ holiday pay for any part-year workers and those who work irregular hours, please get in touch with us and we can help you to introduce this change.

Contact Joanna Scally today for more information, we would be delighted to assist.