WFM UK | UK HR: Holiday for Irregular Hour and Part-Year Workers

Overview

In November 2023, the Department of Trade and Business published draft legislation concerning the calculation of holiday accrual for irregular hour and part-year workers.

For holiday years starting on or after 1st April 2024, employers will be able to calculate annual leave entitlement as 12.07% of hours worked in a pay period.

Employers will also have the option to operate rolled-up holiday pay for the same workers based on 12.07% of all earnings within the pay period.

Fourth is currently scoping and refining the work needed to update the UK HR module with the calculations so that customers can use them for employees as of 1st April 2024, in line with the legislation.

Irregular Hour and Part-Year Workers

Irregular hour and part-year workers have been defined within The Employment Rights (Amendment, Revocation, and Transitional Provision) Regulations 2023.

For the purpose of the regulations:

• A worker is an irregular hour worker if the number of paid hours that they work in each period during the term of their contract are wholly, or mostly, variable
• A worker is a part-year worker if, under the terms of their contract, they are required to work only part of the year and there are periods in which they are not required to work and for which they are not paid

Holiday Entitlement

In a holiday year, irregular-hour and part-year workers are entitled to accrue annual leave on the last day of each pay period at the rate of 12.07% of the number of hours that they have worked in that period.  

If the holiday accrual calculation contains a fraction of an hour, it should:

• Round the fraction down to zero if it is less than 30 minutes
• Round the fraction up to 1 if it is more than 30 minutes

Example 1: An employee works 12 hours in the pay period. The accrual calculation comes to 1.4484 hours, so is rounded down to 1

Fig,1 - Example 1

These workers should also accrue holiday for any periods of sick or statutory leave based on average hours worked within a 52-week period.

To calculate the average hours:

• Find the total hours worked within the 52-week relevant period
• Divide the total hours by the number of weeks in the relevant period

To calculate the relevant period:

• Use a period of 52 weeks ending with the day before the day the worker started the sick or statutory leave
  • If the worker has been employed for less than 52 weeks, use the maximum number of weeks available
• Do not include any weeks that the worker was, for any amount of time, on either sick or statutory leave
• Include all other weeks during the period - including weeks during which the worker did not work any hours
• If any weeks in the 52 are discounted due to the worker being off sick or on statutory leave, earlier weeks shall be taken into account so that the number of weeks is 52
• No account is to be taken of the hours in weeks proceeding the period of 104 weeks

A worker, in any leave year, cannot accrue more than 28 days of annual leave.

Rolled-Up Holiday Pay

Employers will also be able to calculate the holiday pay for irregular-hours workers and part-year workers using rolled-up holiday pay. If employers choose to use rolled-up holiday pay, they will be required to calculate a worker's holiday pay as 12.07% of the worker's total earnings within the pay period.

The employer will be required to pay the worker with each payday, rather than when the leave is taken and the payments must be clearly marked as 'Rolled-Up Holiday Pay' as separate payments within the payslip.

Paying Holiday

The rate at which holiday should be paid for irregular hours and part-year workers is determined according to the following formula:

A ÷ B

• A - the week's pay
• B - the average number of hours worked by the worker in each week used in the calculation of A

Example 2: Employee's average hourly rate

Fig.2 - Example 2

The following payments should be included in the calculation of the average hourly rate:

• Payments including commissions which are linked to the performance of tasks
• Payments for professional or personal status relating to length of service, seniority or professional qualifications
• Other payments, such as overtime, which have been regularly paid to a worker in the 52 weeks preceding the calculation date

If not already included, the above should be used to pay an amount on top of the worker's main hourly rate.

When calculating the average weekly earnings:

• Weeks, where no pay was earned, should not be included
• Weeks where the worker, for any amount of time, was on stick or statutory leave