Comments

In November last year, the government confirmed it would proceed with radical changes to statutory holiday entitlement. Broadly speaking, the new rules:

• Codify existing case law on what elements of pay should be reflected in holiday pay and when holiday entitlement must be carried forward to the next holiday year. However, in some respects, especially in relation to pay, the rules may have unintentionally gone further. These rules came into force on 1 January 2024.
• Create the concepts of "irregular hours (IH) worker" and "part-year (PY) worker", for whom accrual is linked to the number of hours they work, with special rules for accrual during sickness absence or statutory leave, and for whom rolled-up holiday pay will be made lawful. These rules will apply to leave years starting on or after 1 April 2024.

See here for further detail and our analysis of the changes.

The government has now published guidance on the changes. It contains some useful illustrations of who might qualify as an IH or PY worker, as well as some worked examples of how to calculate their holiday entitlement and rolled-up holiday pay. However, some issues, such as whether working overtime necessarily makes someone a IH worker, are left open for the courts to clarify.  Moreover, we believe that some sections appear to contradict the legislation. In particular, section 3.4 purports to illustrate how to calculate how much holiday an IH or PY worker would accrue when on sickness absence or statutory leave (such as maternity leave). It correctly refers to a 52 week reference period but then averages hours worked over 46.4 weeks (i.e., 52 weeks less 5.6 weeks of holiday). The new regulations appear to state the contrary, since they make clear that the average is across an entire 52-week period, including weeks in which the employee did no work (save for those during which the employee was on sick leave or statutory leave). We consider that a correct application of the new rules would therefore result in slightly less holiday accruing than the guidance indicates.

Another limitation to the guidance is that it does not deal with some of the thornier issues created by the new rules and which we flagged in our previous update. For example, it does not address the question of whether the new rules inadvertently mean that something like an annual bonus should be factored into holiday pay.

Given the potential impact of the new rules, organisations should be cautious of relying too heavily on the guidance. We would be happy to advise you on the specific impacts of the new rules on your organisation, and tailored solutions.