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Changes to holiday entitlement and holiday pay – your HR questions answered

Kate Benefer, Partner, RWK Goodman

Some of the changes to the Working Time Regulations – and in particular holiday entitlement and holiday pay – have been a cause for confusion among employers and their HR teams.

Many of the issues were discussed and clarified at Allen Associates HR Hub on holiday pay, led by employment partner Kate Benefer from RWK Goodman in Oxford – but inevitably, there were more questions than we could answer in the time available.

This blog captures the key questions asked at Allen Associates HR Hub with answers provided by the employment team at RWK Goodman.

Holiday entitlement

Does 5.6 weeks include bank holidays?

Yes. There is no specific entitlement to time off on bank holidays but if offered, these 8 days will count towards the 5.6 weeks.

If an employer does not pay sick pay, should the employer allow the employee to use their holiday allowance to cover a short period of absence? Or is it up to the employer?

An employee can choose to request holiday during sickness absence if they wish. It would need to be approved by the employer in the normal way. An employer should not force an employee to take holiday during sickness absence.

If allowing holiday to cover sickness absences, employers should be careful to ensure this doesn’t result in sickness issues being ignored or opportunities for support and adjustments missed.

If a worker is off on long-term sick can they tag sick leave onto the end of their sickness period to ensure they are using up some of their leave as well as for wellbeing reasons

An employee on sick leave can request to take holiday if they wish to but it is an employee’s choice. They should not be forced to take holiday.

If a staff member wants to take unpaid holiday/time off because they have ran out of holiday for that calendar year can they? Also, can they take holiday from the following year to add on to current holiday year if ran out?

Unpaid leave is something which is up to the employer. It can be offered / agreed to but there is no obligation.

Statutory holiday should not be taken from a future holiday year as it would mean the worker having less than the minimum the following year. If contractual leave exceeds the statutory minimum, you could allow the additional amount to be used in advance if you wish.

Normal remuneration

If an employee works overtime, do they receive holiday pay for these extra hours?

Yes, if the overtime is regular. There is no guidance as to what regular means and it will be considered on a case-by-case basis. There has been a Tribunal case where overtime one week every four or five weeks was confirmed to be considered regular.

We have 4 day a week contracted workers who regularly work on the 5th day of the week. What impact does this have on the normal holiday pay, if any?

This sounds like regular overtime so the earnings for the 5th day would need to be included in holiday pay as normal remuneration.

If you have full time staff that work quite a lot of overtime, what is the best way to calculate holiday pay on the overtime. Do you use the 12.07% and pay in the same period the overtime is worked?

For staff with regular contractual hours, you wouldn’t need to apply the 12.07% accrual rate. This is rate used to calculate entitlement for staff with irregular hours.

Instead, you would need to look at average earnings (including the overtime) over the 52 week period prior to the start of the holiday and use this to work out what the individual is entitled to be paid while on leave.

Do we only need to worry about regular overtime that is done after 1/4/24?

No – the point about including overtime in the calculation of normal remuneration is already in force. It is a point which arose through case law but has now been set out in statute as well with effect from 1 January 2024.

The point from the case law is that the Working Time Regulations have been interpreted to mean overtime should always have been included. If holiday has been paid without including overtime, subject to limitation periods, this may mean there is a risk of a claim.

Carry over

Does an employer have to allow carry over?

No, not generally. It is still ok to have a use it or lose it policy but if the individual is unable to take leave due to sick leave or statutory family leave, they have a right to carry it over.

Also, under the amended Regulations in force from 1 January 2024, leave can also be carried over if an employer fails to:

  • recognise the right to leave,
  • give a reasonable opportunity to take the leave or encourage them to do so
  • inform the work that leave will be lost if not taken

If an employer only allows workers to take leave in specific months should employees be entitled to carry over unused leave? For example, if they are only allowed to take leave in Jan, Feb, Aug, Sept and Oct - is this a reasonable period for the employee to use all of their leave?

Provided this restriction is clear to workers and it is realistic for them to actually take their leave in these months (i.e. no problem with everyone taking leave at the same time and no issue with work being covered) this would seem a reasonable opportunity to take leave and therefore not in itself trigger the carry over rights.

Pay instead of time?

Can people take pay if it's too difficult to take holidays?

People cannot opt to take pay instead. The statutory minimum leave can only be paid on termination if an employee has unused holiday. The only change with this is that for irregular hours / part year workers, the employer can choose to pay rolled up holiday pay . However, this is only for leave years starting from 1 April 2024. This is simply an alternative method of holiday pay. It does not allow the employer to restrict the right to take time off, nor does it provide the employee with the legal right to payment in lieu of holiday.

If an employee does not utilise all their 5.6 weeks leave, can a portion of the 5.6 weeks be paid out to the employee, or do they have to take the leave?

As above, statutory holiday cannot be paid other than on termination or as rolled up holiday pay for those with irregular hours / part year workers.

Irregular hours / Part year

For casual workers who currently have a holiday year Jan-Dec, is it ok to re-issue contracts with the change of payment method i.e.rolled up holiday pay and with a new holiday year April - March and start this with effect of 01/04/24.

In theory yes provided they meet the definition of an irregular hours or part year worker and provided they are not actually an employee as changing terms for an employee is more difficult and could lead to claims.

If a part year worker (e.g. term time only) is paid the same each month regardless of actual hours worked are they still entitled to full 5.6 weeks or can it be pro-rated?

For leave years starting from 1 April 2024, the entitlement can be pro-rated using the accrual calculation of 12.07%. However, for leave years prior to that, the Harpur Trust decision will apply and 5.6 weeks leave must still be given.

When calculating pay based on the reference period of 52 weeks for irregular hour workers or part year workers, if there are a number of weeks when no work was done, should you extend the reference period to get a full 52 weeks?

Yes. You can go back to a maximum period of 104 weeks.

Rolled up holiday pay

Do we need to give casual workers the option of paying the 12.07% every month or to take the time off (calculating the average of the past 52 weeks)?

It is for you as the employer to decide how to approach holiday pay for these workers. You are not required to give the individuals the option.

For Zero hours contracts, is it mandatory for an employer to offer paid leave or can leave be unpaid if indicated in the contract?

Holiday pay must be provided either by paying workers during their period of leave or by rolled up holiday pay.

Ensuring staff take leave

The new regulations for rolled-up holiday pay suggest that if an employer is paying rolled up holiday pay for irregular workers, the onus is still on the employer to ensure that the worker has 5.6 weeks off (the time off being unpaid). What measures do you anticipate that the employer will be expected to implement to satisfy this obligation?

Policies should be clear so that workers are aware there is an expectation to take leave. There should also be general reminders to staff encouraging them to take leave and if an employer becomes aware someone is choosing not to take leave, discussions should take place. However this does not mean that an employer will be in breach of the regulations if a worker has not taken their full entitlement  by the end of the leave year and a ‘use it or lose it’ policy will not conflict with the employer’s obligations. The important thing to remember is that the employer should in no way be prohibiting the right of workers to take time off, either explicitly or implicitly, and that they respond appropriately if a worker is refusing to take time off to the detriment of their health and safety.

What potential repercussions is the employer exposed to if it does not comply with this obligation?

If an employer fails to encourage workers to take leave, the risk is the worker is able to carry over that leave into a new holiday year. There are also potential health and safety risks if individuals are not taking appropriate time off so as to give themselves a proper break.

Forcing an employee to take leave

If we are prompting staff to take annual leave but they still don't, can we allocate it to them? Can we compel them to take it on health and safety grounds?

You can require staff take holiday on dates you specify provided you give requisite notice. However, you are not required to do this. Provided you give them opportunity to take the leave, and encourage them to do so,  if they chose not to and then lose it, this would not be a breach of the working time regulations.

The notice required is twice the length of the holiday so if you wanted to force someone to take one week of leave, you would need to give two weeks’ notice of this.

Forcing holiday is unusual and may lead to an aggrieved employee. We would recommend trying to understand the reason for the employee not taking the leave first. You can raise health and safety as a concern during that discussion.

If you would like legal advice or support with anything employment related, please contact partner Kate Benefer at RWK Goodman in Oxford.

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