Holiday Pay and Accrual – Key Changes You Need to Know!

On the 1 January 2024 new laws came into force regarding holiday pay and the calculation of holidays, and these will affect many if not most employers in the travel industry. Below we walk through some of the main changes to the calculation of holidays and holiday pay implemented by  Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (SI 1426/2023).

What’s included in the calculation of Holiday Pay?

Many employers in their travel industry pay their staff commission, for selling holidays and regular overtime is commonly used during peak seasons for example. Should holiday pay include commission and overtime or should it just include basic pay during any period of annual leave?

Employees are entitled to a minimum of 5.6 weeks leave per year, made up of 4 weeks which derives from EU law and 1.6 weeks leave derived from UK law. In terms  of the 4 weeks EU leave, EU case law over recent years as stated that “normal pay“ for holidays must include regular overtime and commission payments, otherwise there would be a detriment to individuals taking holiday leave as they would earn less whilst on holiday. There had been some confusion whether this would continue to be the case, and what would happen post 1 January 2024 when EU Supremacy would end. The government has decided to enshrine the existing position under EU law into UK law. Normal pay under UK law has now been defined to include;

  • Payments, including commission payments, intrinsically linked to the performance of tasks which a worker is obliged under their contract to carry out.
  • Payments for professional or personal status relating to length of service, seniority or professional qualifications.
  • Payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date.

Employers will now have to ensure normal pay is paid for at least 4 weeks and can choose if they wish to pay only basic pay for and additional leave over and above. Although from a pragmatic point some employers already pay all leave at normal pay rate.

Prior to the implementation of these changes onto UK statute books from my experience, only a handful of employers in the travel industry have been calculating holiday pay correctly – mostly through ignorance of the legal position having never adjusted their holiday pay approach to reflect EU rules about normal pay, as opposed to deliberate failures. Given the position has now been crystallised in UK law, if you are a travel employer who has not adjusted your method of calculation of holiday pay you should take advice on compliance and minimising backdated claims. Doing nothing is no longer an option as all it does is increase potential liability moving forward, as employees can claim backdated pay going back 2 years. Consequently, employers should undertake holiday pay audits to calculate exposure to backdated claims and recalculate the way holiday pay is paid.

What about part year workers or those with irregular hours?

The terms “irregular-hours worker” and “part-year worker” are defined in the regulations and include workers whose hours are irregular (such as casual workers and some agency workers), and workers who under their contract have periods in the year of at least one week where they do not work and are not paid, such as hourly-paid term-time workers.

Due to previous case law namely the Supreme Court’s decision in Harpur Trust v Brazel [2022] UKSC 21, difficulties were caused due to the perceived unfairness of part-year and some casual workers having a greater holiday entitlement than regular workers, proportionate to the hours worked. In order to address this for leave years starting from 1 April 2024, Holiday will be calculated in hours rather than weeks, and will accrue on the last day of each pay period, at the rate of 12.07% of the actual hours worked in that pay period. An average over a 52-week reference period will be used to calculate the amount of holiday accrued during a period of sick leave or statutory leave (such as maternity leave).

Find out more about this, and other key changes to Employment Law your travel business needs to know about, in Ami’s latest webinar on Monday 22nd January 2024 at 11am. CLICK HERE TO REGISTER

For help and advice on employment laws within the travel industry, contact;

ami@travlaw.co.uk

or call;

0113 258 0033

This article was originally published on: 11 January 2024

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