Holiday Pay: Projected Changes

Rolled up holiday pay is a practice whereby an employer pays you an additional amount on top of your normal pay to reflect any extra hours you may have worked in the pay period. The additional amount was paid at 12.07% of the extra earnings. So, if you earned an extra £100 through working overtime in a given pay period, you would receive an extra £12.07 to reflect additional holiday pay. In 2006 it was ruled that the practice of “rolling up” holiday pay was unlawful. In April 2022 it was ruled illegal.

The latest government thinking is that, in light of the findings from Harpur Trust V Brazel, holiday pay calculations have become far too complicated & need to be simplified. To that end it is proposed that the current 52-week holiday reference pay period is kept, but the policy of rolling up holiday pay should be re-introduced.

The new proposal would give employers the choice as to whether to continue using the 52 pay period reference method or to roll up holiday pay for workers with irregular hours.

Currently, employees have two separate holiday entitlements. 4 weeks as required by EU law & an additional 1.6 weeks provided by UK law. As part of the Retained EU law, it is proposed to merge the two types of holiday.

As things stand, different rules apply to the different entitlements. For example, under the EU holiday rules additional pay such as commission, bonus & overtime need to be taken into consideration when working out holiday pay. Under UK holiday rules, only basic pay is applicable.

Having one pay rate helps to simplify the calculation process, but no details have been given as to what that rate should be. Current thinking is that it should be based on the existing 52 pay period reference method, which, as most employees now pay their staff monthly, is no real step forward.

Another proposal would see an end to the anomaly of part-year workers (normally those employees who work school term times only) receiving the same holiday entitlement to an employee who works 52 weeks of the year. As part of the changes, the government is proposing to introduce a holiday entitlement reference period to ensure that holiday entitlement & pay is directly proportionate to time spent working.

For more information or advice, contact your local Whitings LLP Office.

Disclaimer - All information in this post was correct at time of writing.