Government launches holiday pay consultation – what should employers be aware of?

Employers will be delighted to hear that the Government are consulting on amending the way in which holiday pay is calculated for part-year workers and those with irregular hours.

As most of you will be aware, the Harpur Trust decision has caused huge issues for employers, both in terms of the administrative burden now involved in calculating holiday pay and the bizarre results for part-year workers who are often now receiving more holiday pay than a comparable worker, working the same number of hours but on a part-time as opposed to part-year basis. The fact that the Government are reviewing the position should be music to employer’s ears, particularly those in the education sector.

Following the Harpur Trust decision, holiday pay for part-year workers has to be calculated based on a 52 week reference period, but excluding any weeks in which no work was undertaken, usually meaning employers are forced to go back further than the most recent 52 weeks. Please see our earlier article for further details.

Under the Government’s proposals, the proposed reference period would be the most recent 52 weeks, but crucially, weeks in which no work was undertaken would be included for the purposes of the calculation.

In the newly published Consultation Paper the Government state:

“The Government is keen to ensure that part-year workers and workers with irregular hours receive the holiday entitlement and pay which reflects the hours that they have worked. The Government is considering introducing legislation to resolve this anomaly by allowing employers to pro-rate holiday entitlement for part-year workers so that they receive leave in proportion with the total annual hours they work. The simplest way to do this would be to introduce a 52-week holiday entitlement reference period for part-year workers and workers with irregular hours, based on the proportion of time spent working over the previous 52-week period.”

The Paper sets out by way of example, that under the current rules, if employee A is employed for 40 hours per week, for 26 weeks, and works each of the 26 weeks, they would work a total of 1040 hours and be entitled to 112 hours holiday pay. Whereas, if employee B is employed for 40 hours per week, for 26 weeks, but works in only 18 of those weeks, they would work a total of 720 hours but still be entitled to 112 hours holiday pay.

Thankfully, the Government has recognised that this is not acceptable and are consulting on correcting the position. Using the same example as above, but applying the new proposed calculation (in which weeks not worked are included), employee A would still receive 112 hours holiday pay, but employee b would receive only 77.56 hours holiday pay, which is far more palatable.

At this stage, the proposal is out for consultation, and it is just that, a proposal. However, given the bizarre results and extra work created for employers following the Harpur Trust decision, it does appear likely that the proposal will go through.

For now, employers are forced to continue to apply the existing calculation and part-year workers will continue to benefit from the decision, but hope is around the corner and given the consultation closes on 9 March 2023, we should soon revert to the common sense approach!

If you have any questions regarding calculating holiday pay, including updating your contracts of employment or policies, please do contact James Twine at jtwine@wolferstans.com or on 01752 292351.