In December, it was announced that there would be changes to the way pay and holiday entitlement is calculated for irregular and part-time workers, affecting seasonal workers and those on zero-hours contracts. Officially announced in The Employment Rights (Amendment, Revocation and Transitional Provision) Regulation 2023, the new rules will have a huge impact on the distribution, logistics and manufacturing industries, where seasonal work and zero-hours contracts are commonplace.
Therefore, payroll leads need to be aware of the changes and ready to make updates. Add to this a host of other alterations to pay, including recent national insurance changes and a national minimum wage increase in April, and it is clear how a strong payroll management system is more important than ever. With software that automates complexity and makes calculations for you, complicated legislation changes can be navigated with ease.
Who do the new reforms apply to?
Irregular hours workers are defined as those whose working hours are variable, and can change. If a worker has a rotating shift pattern, but the pattern remains set – like a rotating 2-week shift pattern – this does not count as variable. Variable applies only to hours that change, and often applies to a ‘casual’ or zero hours contract.
The reforms also apply to part-time workers; employees who work only part of the year, and are only paid for their working time. Seasonal workers are frequently used in the manufacturing, distribution and logistics industries, with EVRI, the UK delivery firm formerly known as Hermes, hiring 6,800 new courier and service industry jobs to deal with Christmas rush, for example. In line with the new rules, these workers will now be paid differently.
What do the reforms entail?
The reforms make it clear and mandatory that holiday pay for part-time and irregular workers is accrued throughout the year, rather than assigned at the beginning of the financial year as it is for full-time workers. It will also be a new, set amount proportionate to amount of time worked, rather than calculated based on average working hours.
Statutory holiday entitlement is now 12.07% of the hours an employee works in a pay period. This aligns with the fact that all full-time workers are entitled to 5.6 weeks leave. For part-time or temporary workers, using the 12.07% of figure means that they are assigned a portion of this statutory paid holiday time in line with how much of the full 52 weeks of a year they work – or on a smaller scale, how many hours in a month, compared to a full-time worker.
There is also a 28-day cap. If your workers are working 6 days a week, for example, 12.07% of hours worked could amount to over 28 days; employers are not obliged to provide over 28 days holiday leave.
All the changes apply only to statutory holiday leave i.e. the minimum amount that could be paid. If the employee is assigned more than the statutory amount of leave in their contract, the amount of leave will change.
The reforms also bring in rolled-up holiday pay, where employers can add an additional amount of holiday pay to each payslip instead of paying holiday pay specifically when a worker takes annual leave.
Carryover of holiday is also being made mandatory, allowing workers to carry over their statutory holiday entitlement/pay if they are unable to take it due to family-related leave or sickness.
When do the reforms come into action?
The reforms will come into action for leave years that begin on or after the 1st April 2024.
Why were the reforms brought about?
Previously, there was confusion about what holiday pay was allocated to part-time and casual workers. A landmark case in July 2022 left employers confused about how to calculate holiday pay.
The new legislation formalises the pro-rata system, providing clarity by clearly linking holiday entitlement to hours worked.
How can you adapt effectively?
A strong payroll system will incorporate the changes, so new holiday pay requirements can be calculated within the system. Choosing a software as a service provider like Advanced to take care of payroll means we worry about the legislation, leaving your company’s professionals able to concentrate on value-add tasks.
Our Payroll solution at Advanced will provide a release incorporating the new holiday changes from early March at the latest. On-premise customers will be able to update themselves and hosted customers will see an upgrade over the following few weeks – meaning that changes will be in place well before the April legislation changes. Payroll will facilitate the move to the new holiday pay and entitlement system, speeding up and streamlining your business’s adoption of this change. The National Insurance changes and minimum wage changes will also be fully incorporated, with the product receiving changes directly from HMRC to provide a fully compliant service.
You can choose to integrate your Payroll system with HR, providing employees with a self-service way to request holiday using the new rules and giving HR leaders a clear and comprehensive overview of when holiday is being taken.
Ultimately, these reforms are designed to eliminate confusion around paying part-time and irregular workers. However, without a strong software system, there is potential for teething issues implementing the changes. Choose a strong system to fully benefit from the new, streamlined rules.