Holiday Pay 2024

Paid annual leave is a legal right that every employer must provide, but with holiday pay calculations getting more complex and time-consuming, it’s not always an easy task. Different rules apply to different types of workers and not complying to UK holiday pay law can lead to fines and potentially even backdated pay, so it’s important to get it right. Here we’ll take you through some FAQs about holiday pay in 2024.

What are the main takeaways from the 2024 holiday pay law?

The UK government announced changes to holiday pay legislation on 1st January 2024. The new law sets out to reform how all irregular-hour workers (i.e. those with no fixed hours and part-year workers) receive (on average) the same amount of pay when on holiday, as they would if they were working. This should take into account basic pay and any additional payments they would normally receive in an average working period (i.e. commission, overtime, bonuses) over a 52-week average period (or as far back as you can go if not 52 weeks and no more than 104 weeks).

According to these changes, there are two new methods that employers should use to calculate holiday pay for irregular-hour workers – RHP (rolled-up holiday pay) and accrual of hours both at 12.07%.

NOTE: These changes relate to how holiday pay is calculated only for irregular-hour workers (aka zero-hour contractors or part-year workers). All other workers are unaffected (i.e. 52-week average reference period remains).

Who is affected?

These changes only apply to irregular-hour workers (aka zero-hour contractors and part-year workers). Therefore employers must re-evaluate how to calculate holiday pay for these types of workers.

When do these changes come into effect?

These changes come into effect from April 2024 but only apply at the start of an employer’s next holiday leave year. For many employers, the next holiday leave year is January 2025, so the new law does not apply until then. If your leave year ends after April 2024, then the new law will apply.

Who decides how an employer should calculate holiday pay?

Just as employers decide how they’d like to pay their employees, employers can decide how to calculate holiday pay. As long as employees receive the correct holiday entitlement and correct holiday pay, any method of calculating holiday pay will be fine – whether that’s RHP or accrual of hours.

How frequently should holiday pay be paid (accrual method)?

When you use the 12.07% accrual method, you are essentially banking the holiday hours until the worker requests a holiday. In reality, when a worker goes on holiday they do not earn anything, so holiday pay must be paid to the workers during their holiday to make up for this. Simply put, they will receive the same average pay while on holiday, as they would if they were at work working. Therefore this method requires careful tracking of holiday entitlement and respective pay.

Can I use the new method for fixed hours or variable pay workers?

No – not. You must use the existing 52-week average method for all workers who are not irregular and not part-year. This requires you to calculate a rolling 52-week average and workout one week’s pay. You can then carefully divide this into a fixed number of fractions (days or hours) and pay that fraction of a week. However, you cannot use 12.07% of pay or hours for this

Can I use the ‘old’ 12.07%

No! This cannot be used – the old 12.07% was never the law and the new changes are quite different.

What are the different mechanisms for calculating holiday pay?

There are two mechanisms for calculating holiday pay:

1) Manual calculations using spreadsheets to calculate using either 12.07% rolled-up holiday pay (RHP) or 12.07% accrual method. However, this requires a lot of tedious calculations and careful tracking to comply with the holiday pay law.

2) Automated payroll software that can quickly and compliantly calculate holiday pay for you instantly, so you can save time and be rest assured that you are compliant with the law. You can choose a payroll system that automates the entire payroll process for you or an automated holiday pay companion (“add-on”) to your existing payroll software. At paiyroll®, we do both!

Try automated holiday pay for free ➡️ free paiyroll® trial
You’ll get access to all of our features including the self-service app so. Once set up you can run your own payroll instantly – automated holiday pay, pro-rata salary, tax calculations and so much more…

Holiday pay plug-in for existing payroll software ➡️ holiday pay companion
If you’re not ready to switch, you can try the nifty holiday pay companion which gives you exclusive access to the automated holiday pay software. Simply plug into your existing payroll software for instant holiday pay calculated for all of your employees. That means no more calculators and no more stress.
Note for Northern Ireland users, a 12-week average period can be applied instead of 52-week average.