Payroll – Time to update your approach to holidays
There have been several recent changes in the Working Time Regulations introduced by the Government on 1 January 2024 that businesses must comply with.
The Department for Business and Trade (DBT) has released guidance detailing these reforms, which are vital for updating your payroll processes.
These key changes include:
- Clarification of Holiday Entitlement and Pay: The reforms simplify holiday entitlement and pay calculations for irregular hours and part-year workers. For holiday years starting on or after 1 April 2024, irregular (variable hours) and part year workers’ holiday can be processed in one of two ways:
- Rather than holiday pay being calculated based on an average of the last 52 weeks of pay, the last 52 weeks hours and pay should be recorded and multiplied by 12.07%.
- Alternatively, rolled up holiday pay can be used. This is to be calculated at 12.07% of pay and hours worked in the current pay period. The rolled-up holiday pay must be shown separately on the payslip to the hours worked.
- Revision of COVID-19 Regulations: The removal of the Working Time (Coronavirus) (Amendment) Regulations 2020 impacts the carryover of COVID-19 leave. Annual Leave carried over from during the pandemic must be used before 31 March 2024. It cannot be paid out as an extra payment unless the employee leaves.
- Maintaining Holiday Pay Rates: The current structure of holiday pay, where four weeks are paid at the normal rate and 1.6 weeks at the basic rate, remains, along with the two distinct pots of leave.Holiday pay during 4 weeks of leave should include payments normally received by the employee. This includes:
- regular overtime and commission
- regular bonuses which are related to the employee’s performance at work
- payments or allowances received for seniority, length of service, and professional qualifications.
The remaining 1.6 weeks should be paid based on basic pay as a minimum, however many employers choose to pay the full 5.6 weeks statutory holiday pay based on normal remuneration to keep things simple.
For those using rolled up holiday pay, all 5.6 weeks must be based on normal remuneration.
In light of these recent and upcoming changes to holiday accrual and pay we recommend adjusting your payroll systems accordingly.
It’s also advisable to stay tuned for further clarifications and updates, especially concerning the definition of part-year workers.
Updating your payroll processes in line with these changes is not just a matter of compliance, but also a step towards more efficient and fair management of your workforce’s holiday entitlements and pay.
To find out more about our dedicated payroll services, please speak to our team.