In 2022, the Supreme Court ruled that the old 12.07% calculation for casual workers, which had been used for years, was no longer relevant. Due to these changes to holiday pay for irregular hours, many businesses have had to rethink their policies.
The ruling stated that employees with irregular hours, including those on zero-hour contracts, are entitled to the same number of holidays as a full-time equivalent employee. This means that seasonal workers should receive the same statutory holiday entitlement of 5.6 weeks (28 days) as those working full-time hours.
This meant that employees working full-time, or regular hours were inadvertently put at a disadvantage. Consequently, the government reverted to the 12.07% rule due to pressure from businesses regarding what seemed to be unfair treatment for those working regular hours. This revision will apply from April 2024.
The difference between irregular hours and part-time hours
Whilst we are thinking about holiday pay for irregular hours, let’s make sure we note the difference between irregular hours and part-time hours.
- Irregular hours – when the hours worked during each pay period (weekly or monthly) varies depending on the work available
- Part year workers – those only working part of the year like seasonal workers.
- Part-time hours – these are set hours in any given pay period.
When we talk about irregular hours workers and part-year workers, their holiday entitlement should be calculated based on their average pay over the previous 52 weeks.
There may be times in the 52 weeks when a worker didn’t get paid because they were ill, on leave or on maternity leave. In this case you can go back (up to previous 104 weeks) until you get an average of 52 weeks.
What does 12.07 mean when calculating holiday pay?
Firstly, it is important to note that the calculation of statutory holiday entitlements for employees working regular hours (full or part-time) has not changed. The statutory entitlement is 5.6 weeks.
Secondly, holiday entitlement may be different depending on the employment contract. So it’s always best to check what the contract states.
The 12.07 figure is a breakdown of 5.6 weeks. This is the twenty days, plus the eight bank holidays. Here’s how it’s worked out:
- Takeaway 5.6 weeks from 52 (number of weeks in a year)
- This gives you 46.4 weeks
- 6 divided by 46.4 gives 12.07%
However, you may have given more holidays to your employees. It’s important to note that if, for example, your employment contract states a 6-week holiday entitlement, then 12.07 is not correct.
You’ll need to calculate the holiday entitlement based on what is agreed in the contract.
The sums would be:
- Take away 6 weeks from 52 weeks, giving 46 weeks
- 6 divided by 46 weeks gives 13.04%
So, an irregular worker would be entitled to 13.04% of the actual hours worked as holiday entitlement.
Example of holiday pay
Nichola works irregular hours and is paid monthly. Her average hourly rate based on the last 52 weeks is £15.05. In June she works 68 hours.
Her holiday entitlement will be 12.07% of 68 hours which rounded down is 8 hours.
If we use the average rate method, Nichola’s taxable holiday pay will be £120.40.
Rolled-up holiday Pay
“Rolled-up” holiday pay is when an employer tops up the pay each period to reflect the holiday entitlement.
Starting April 2024, employers can use the rolled-up holiday pay for those working irregular hours.
If you are going to do this, you must use at least 12.07%. You must also pay it simultaneously as the wages and show it as a separate line on the payslip.
Taking regular holidays and time off work is important for your team’s well being.
If you’re considering introducing rolled-up holiday pay, it’s crucial to consult your employees. Remember that if employees take holidays, they won’t get paid.
However, those with irregular hours might prefer to get paid regularly, seeing the time they are not working is their holiday. In any case, it’s vital to have an open conversation and reach an agreement. Remember to document this to ensure everyone’s needs are met.
You don’t have to exercise rolled-up holiday pay. You work out the holiday entitlement using the normal method and then pay workers when they take their holiday.
Example of rolled-up holiday pay
Sally works irregular hours at her local pub. Her employer uses the new rolled-up holiday pay. In June, Sally earns £1,000. Based on the 12.07 rule, she should receive £120.70 extra as holiday pay. This will be shown separately on her payslip.
In July Sally worked for 2 weeks and 2 weeks holiday. She earns £500 for the two weeks. Sally should get £60.35 rolled up holiday pay in addition to the £500 pay. She only gets paid for the 2 weeks she worked and not the 2 weeks she took as holiday.
If you need help
You can read the full government guidance on holiday pay reforms here. It has some useful links and examples which you may find useful.
If we are managing your payroll, you can be confident that everything is taken care of. If you have any queries, feel free to contact your payroll manager.
However, if we are not currently providing payroll services for you and you wish to learn more, please email Priya at priyar@myersclark.co.uk.