Holiday Pay: Everything You Need To Know

2024 Holiday Pay for Irregular-Hour Workers:
Everything You Need To Know

Watch the recording of our Holiday Pay webinar.

We untangle the 2024 holiday pay legislation, what’s changed, how to calculate holiday pay and solutions.

2024 Holiday Pay Legislation

On 1 January, 2024 the government announced the biggest shake-up in holiday pay since 2020, where the employer will be able to choose between 2 new holiday pay methods:

Method 1:
12.07% rolled-up holiday pay.
Method 2:
Accrual of hours at 12.07%

A few things to note:

  • These changes only apply to irregular-hour workers (zero-hours contractors) workers and part-year workers (e.g. term-time).
  • All other workers are unaffected and will follow the 52-week average reference period (i.e. salaried workers and variable-hour workers).
  • The changes will not take effect until an employer’s holiday leave year starts after April 2024.

Types of Workers

First, let’s clarify what are the different types of workers. We can do this by looking at the pattern of their earnings.

Salaried worker
(fixed hours, fixed pay)

Receives fixed salary for a fixed number of hours, every pay period. Their salaries might increase with a pay rise.

Variable pay worker
(overtime, commission)

Receives a base salary, with regular additional payments in the form of commission or overtime.

Irregular-hour worker
(zero-hour, part-year)

Receives pay based on hours worked in each pay period, but since there is no fixed work schedule, pay is inconsistent.

Hereafter we’ll focus on the irregular-hour worker, as this is the only worker type affected by the 2024 holiday pay law.

The Guiding Principle

Secondly, we need to understand the premise of holiday pay. When an irregular-hour worker goes on holiday, they are not working and therefore not being paid. With the 2024 legislation, “pay received by a worker while on holiday should reflect what they would have earned if they had been at work working”. We coined this guiding principle that should help you stay on course. So if there’s one thing you should remember from this page, it’s this!

“Pay received by a worker while they are on holiday should reflect what they would have earned if they had been at work and working.”

Reflecting back on this principle whenever you are unsure about holiday pay should be your guide to getting holiday pay right.

Now let’s get into the methods of calculating holiday pay.

Method 1: Rolled-Up Holiday Pay (RHP)

With this method, holiday pay should be calculated at 12.07% of the total pay for that period, and included in the payslip.

In fact, the government expects employers to clearly mark RHP pay separately on each payslip.

Although this is the simplest approach, many businesses avoid this for a number of reasons, particularly because it is not a cost-effective solution and deters employees from taking time off. Nevertheless, you can choose to use this option if it suits your needs.

Since they’re already getting holiday pay in their regular paychecks, they might feel less inclined to take actual time off, as they will not get paid anything while on holiday. But employers still need to make sure they’re taking their 5.6 weeks of annual leave, and will need to track this separately.

Rolled up holiday pay is based on total earnings and can’t account for different pay rates. So if someone does more overtime than usual, you’re stuck paying that extra 12.07% on the whole amount, including overtime.

Since they’re already getting holiday pay in their regular paychecks, they might feel less inclined to take actual time off, as they will not get paid anything while on holiday. But employers still need to make sure they’re taking their 5.6 weeks of annual leave, and will need to track this separately.

Rolled up holiday pay is based on total earnings and can’t account for different pay rates. So if someone does more overtime than usual, you’re stuck paying that extra 12.07% on the whole amount, including overtime.

Method 2: Accrued Holiday Pay

With this method, you need to work out holiday entitlement first – 12.07% of hours worked in each pay period. These holiday hours are accrued (i.e. ‘banked’) and then used to calculate holiday pay based on a rolling 52-week average rate of pay.

Holiday pay is then only paid out when a worker takes holiday.

Here is a simple table to show how accrued holiday entitlement can be tracked and holiday pay calculated using this method. In fact, you can download this template for free here!

6 – accrue entitled holiday hours (not pay).
9 – when holiday is booked and taken, hours are paid at rolling 52-week average rate.
10 – 4 hours holiday in April will differ from 4 hours in May!

A few things to note:

  • If the worker has been employed for less than 52 weeks, use as many complete weeks of data for your calculations.
  • Backdated holiday pay can go as far back as 104 weeks (2 years).

This is a preferred method of calculating holiday pay as it encourages employees to take holiday and is a cost-effective solution. However, it requires careful tracking of holiday entitlement and holiday time off, complex calculations and requires a robust, responsive system to manage holiday requests.

Employees are incentivised to take holidays. That’s because if they take a holiday they will still receive equivalent holiday pay to compensate for losing their normal working pay.

Employers only pay based on hours worked, and therefore do not need to front the cash.

Holiday pay must be precisely calculated and a running total of accrued holiday hours at 12.07% for each pay run must be kept as well as accrual of hours during statutory leave periods using a 52-week average. This can get very tedious, especially if you have lots of employees!

After careful tracking of accrued holiday, the number of holidays must be visible to the worker. Employers must track holiday usage to ensure 5.6 weeks worth of holiday are taken per year. 

  • A process whereby an employee can request holiday hours
  • A process where the request can be approved
  • A process where the average rate can be calculated and the accrued hours would then be reduced by the amount of holiday taken
  • A process where unused holiday hours are carried to a new holiday year where the worker cannot take the hours

Automated vs Manual Holiday Pay

We’ve learned about the two holiday pay methods, but how can these be put into practice? There are two ways in which you can calculate RHP and accrued holiday pay – manual and automated. Many payroll professionals still calculate holiday pay manually, which means it can take hours or even days to do holiday pay. There is also the possibility of human error, but with paiyroll you can trust that because all our calculations are automated, holiday pay is always compliant with the law.

Automated

It’s time to bring holiday pay to the 21st century! More payroll professionals are choosing to automate holiday pay simply because all those complex calculations are done instantly for you. At paiyroll® we use AI technology to convert your employee data into payroll instantly – that includes (but not limited to) holiday pay!

A holiday pay companion plugs straight into your existing payroll system and automates holiday pay for you. A great option if you aren’t ready to switch payroll providers yet.

By using paiyroll® holiday pay companion, we’re able to tap into historical pay data from your system to automatically calculate holiday pay for every employee, instantly.

An automated payroll software streamlines the entire payroll process for instant payroll – incl. holiday pay.

With paiyroll®, simply upload your data:
1. Employees request holiday (via self-service app) OR,
2. Payroll admin enters holiday into paiyroll® OR,
3. Payroll admin uploads holiday data into paiyroll®

Manual

Many payroll professionals still choose to manually calculate holiday pay, however this is where payroll headaches stems from and human errors creep in. This takes hours, if not days, to calculate holiday pay for each employee, regardless of whether you choose RHP or accrual method.

Manually calculating holiday pay for every employee is not for the faint hearted. It can take hours, depending on how many employees there are, and it not feasible for larger companies.

We offer a free compliance checker to help you stay compliant, contact us here.

Spreadsheets can be used to track holiday entitlement and used for calculating holiday pay based on employee holiday requests.

In fact we have a template you can use, download for free here.

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