Rolled-up Holiday Pay Legislation – Considerations

With the legislation relating to rolled-up holiday pay now in place and affecting leave years that commence from or after 1 April 2024, and with businesses seeking to utilise it, we have put together an article that looks at some of the more nuanced considerations that businesses need to address.

• Facilitating Annual Leave

It is important that clients are cognisant of the fact that while operating rolled-up holiday pay is now formally lawful (for irregular hours and part-year workers) and it is therefore, in many ways, easier to ensure workers are paid correctly for their annual leave entitlement, there is still a requirement that employers take reasonable steps to ensure that workers can take their annual leave and keep records of annual leave taken.  Should an employer fail to do so, it could leave them vulnerable to employment tribunal claims.

With the above in mind, employers should take advice on and consider what processes and procedures they can reasonably put in place to facilitate and record the taking of annual leave.  For some this may be ensuring there is an annual leave policy and/ or reminders to workers of annual leave they have remaining in a leave year.  Ultimately though, the processes and procedures that apply to any particular employer should be bespoke, considering the particular circumstances of the employer.

• The date the leave year commences

Most employment businesses (and some umbrella companies) will engage agency workers on an assignment-by-assignment basis.  When the agency worker completes an assignment there is no obligation on either part to offer or do work on another assignment but if a new assignment is available then it may be offered and may be accepted.

The question for employment businesses in these circumstances is when to commence the annual leave year.  While utilising rolled-up holiday pay will ensure the agency worker is paid the correct amount for annual leave, it does not deal with when the agency worker can take their annual leave.  Therefore, employment businesses need to consider when an agency worker’s annual leave year should commence.

The annual leave year could commence at the start of each assignment.  When an assignment ends the contract ends and so the annual leave year also ends.  When a new assignment commences, a new contract commences and so does a new annual leave year.  Logically this makes some sense, but consideration will need to be given to how easy it is (or not) for the agency worker to take any leave they accrue during an assignment.  Furthermore, this approach can become administratively cumbersome where agency workers engage in very short assignments.

Another option is for the contract to subsist between assignments allowing the agency worker to take leave during breaks between assignments.  While this makes facilitating the taking of annual leave potentially easier, it does create a scenario where obligations persist between assignments meaning other rights and obligations may persist also and the potential for an argument that the mutuality of obligations sufficient for an employment relationship to exist are present, rather than a worker relationship.

For employment businesses and umbrella companies, when the leave year commences is a decision that comes with significant consequences and as such, we would advise that careful consideration is given, and advice is sought.

• Moving workers to rolled-up holiday pay

There is no legal obligation to move irregular hours or part-year workers to rolled-up holiday pay.  While many may choose to, it is not obligatory.  As such, careful consideration needs to be given to the process of ‘switching’ workers/ employees to rolled-up holiday pay.  This is particularly the case if the individuals are employees.  Where this is the case, careful consideration will need to be given to the process and communication of any changes and the risks of unilateral changes to contracts of employment.

A further important factor to consider is that while the legislation commenced on the 1 April 2024, it is for leave years that commence on or after 1 April 2024.  Therefore, the actual commencement of the legislation is staggered depending on when the leave year of a particular worker commences.  For example, if a worker’s leave year commences on 1 October, then the first opportunity to alter the mode of paying holiday pay to rolled-up holiday pay is 1 October 2024 unless an employer alters the mode of holiday pay mid leave year or alters the leave year.  Either would be a complex and contentious process creating additional complexities to those outlined in the paragraph above and advice should be taken.

• Holiday pay in excess of 12.07%

As we previously mentioned in our FAQs, the new legislation does not go beyond the statutory right to holidays and therefore does not consider a percentage in excess of the 12.07% provided for.  This makes sense as any holiday entitlement beyond the 12.07% will be contractual.

Where employers have contractually agreed a holiday entitlement in excess of the statutory minimum, for example in situations where an agency worker is entitled to parity of holidays with a direct employee, then this must be addressed in the contract with the agency worker.  Given the amendment of contractual terms is specific to the employer and worker, we would advise careful consideration and advice is taken.

• Termination procedures

For umbrella companies in particular (although not limited to just umbrella companies), it is often common that employees will stop working for the umbrella company and simply move on to working for another, without notice.  In these circumstances, umbrella companies have to decide when, or even if they terminate the contract of employment and how to terminate it most effectively.  There are a number of factors for an umbrella company to weigh up in these circumstances including, but not limited to: a non-working employee continuing to accrue statutory rights, the chance that the employee will work for the umbrella company again as well as maintaining relationships with the employee and client.  As such, this is a decision that requires legal and commercial consideration and therefore taken after full advice is received.

If you require advice on any of the above, please do not hesitate to contact us.