Holiday pay plans could affect employers

The government has announced proposals to simplify the rules around worker holiday entitlement.

Under the new plans, rolled-up holidays would be allowed and changes made to holiday entitlement and requirements to record working hours.

What could this mean for employers?

Rolled-up holiday pay allowed

The most notable change is that rolled-up holiday pay would be allowed.

This would provide a simple way to calculate holiday pay in particular for those workers with irregular hours or zero-hour contracts. For workers with irregular hours, it is arguably the fairest way of ensuring that those workers receive the correct holiday pay and that they receive it regularly and upfront.

Rolled-up holiday pay would allow the employer to roll up holiday pay into the worker’s basic rate (provided they meet National Minimum Wage regulations) or add it as an increase to the worker’s basic rate. Employers would have to make their workers aware if they choose to roll-up holiday pay and this would need to be clearly stated on their payslip as their holiday pay.

Employers could also choose to use rolled-up holiday pay to calculate and pay the holiday pay of their staff who work regular hours.

What does this mean for employers?

The government says that rolled-up holiday pay would be paid at 12.07 per cent of a worker’s pay per year (the proportion of the year that someone would be on annual leave). If employers offer extra-contractual leave beyond the statutory entitlement, they’d need to adjust the percentage.

If employers do choose to use this method, they need to clearly notify the employee on their wage slips.

Combining holiday entitlement

Currently, staff have two-holiday entitlements which are combined. This is four weeks under section 13 of the Working Time Regulations (derived from EU Law) and an additional 1.6 weeks under section 13A Working Time Regulations (domestic legislation).

Proposals would see the two separate amounts combined into a single entitlement of 5.6 weeks.

This will set out the minimum rate that holiday pay should be paid at, see below. This change would not affect the total annual leave entitlement for workers or change the position on bank holidays which means that employers can still choose to include bank holidays within the 5.6 weeks.

What do you need to know?

Holiday entitlement is difficult for employers currently as there are different rates at which holidays should be paid and whether it should include bonuses or overtime, for example. There is also the issue of staff wanting to carry spare holiday from one year to the next.

The additional 1.6 weeks’ leave provided by UK law does not have to reflect the worker’s normal remuneration and can be paid at their basic pay rate. This makes calculating holiday pay more complicated for employers.

The government is consulting on having a single rate of pay for the whole 5.6 weeks holiday entitlement and what that should be.

What are the consequences for employers?

Some employers already pay the whole 5.6 weeks of leave at a worker’s normal rate of pay because of the administrative time of paid leave at differing rates.

But companies that don’t could face significant additional costs if the entire 5.6 weeks’ leave has to be paid at a worker’s normal pay rate as a minimum in future.

Working time records

The government plans to scrap the EU case law that requires employers to keep a record of daily working hours for members of their workforce.

Whilst the proposal may ease the obligation under the Working Time Regulations to keep records of daily working hours, in reality, employers are still required to keep a record of working hours to meet their obligations under the National Minimum Wage regulations and employers may also want to keep a record of hours to help calculate holiday pay correctly.