Rolled-up holiday pay refers to the practice of including an additional amount in a worker's regular pay to cover their holiday entitlement, rather than paying them separately when they take leave. This method simplifies the calculation and payment of holiday pay, especially for workers with irregular hours or part-year contracts. The UK government reintroduced the legality of rolled-up holiday pay for specific worker categories starting from 1 April 2024.
Key changes in 2024
Legal reintroduction
Rolled-up holiday pay was previously ruled unlawful under EU law due to concerns that it might discourage workers from taking their entitled leave. However, the UK government has reintroduced it for irregular hours and part-year workers under the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023.
Eligibility criteria
Irregular Hours Workers: Workers whose paid hours vary significantly from one pay period to another.
Part-Year Workers: Workers who are only required to work part of the year and have periods within the year when they are not required to work and are not paid.
Calculation method
Rolled-up holiday pay is calculated as 12.07% of the worker's total pay for the pay period. This percentage is derived from the statutory annual leave entitlement of 5.6 weeks, which is 12.07% of the total working weeks in a year (46.4 weeks).
Implementation steps for employers
Step 1: Identify eligible workers
Review your workforce to identify irregular hours and part-year workers. Ensure that their contracts reflect the variability in their working hours or the part-year nature of their employment.
Step 2: Update employment contracts
If you decide to implement rolled-up holiday pay, update the employment contracts to reflect this change. Clearly state that holiday pay will be rolled up and itemised separately on payslips.
Step 3: Calculate rolled-up holiday pay
Calculate the rolled-up holiday pay as 12.07% of the worker's total pay for each pay period. Ensure that this amount is clearly itemised on the worker's payslip.
Step 4: Inform employees
Inform your employees about the change to rolled-up holiday pay. Provide them with details on how their holiday pay will be calculated and paid, and ensure they understand that they are still entitled to take their statutory leave.
Step 5: Monitor compliance
Regularly review your payroll processes to ensure that rolled-up holiday pay is being calculated and paid correctly. Keep accurate records of all calculations and payments to demonstrate compliance with the new regulations.
Additional considerations
Legal compliance
Ensure that the implementation of rolled-up holiday pay does not inadvertently lead to non-compliance with other employment laws. For example, workers must still be allowed to take their statutory leave, and rolled-up holiday pay should not be used as a substitute for actual time off.
Handling disputes
Be prepared to handle any disputes or queries from employees regarding their holiday pay. Clear communication and accurate record-keeping will be essential in resolving any issues that arise.
Transition period
Note that the new rules for rolled-up holiday pay apply to leave years starting on or after 1 April 2024. For leave years that began before this date, the previous rules will continue to apply until the start of the next leave year. So, for an employer that runs their leave years from 1January to 31 December, the rules will not have an effect until 1 January 2025.
By following these guidelines, employers can effectively implement rolled-up holiday pay in compliance with the new regulations, ensuring that their workers receive their entitled holiday pay in a clear and transparent manner.
Further reading
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