Handling holiday pay ahead of the Edinburgh Festival: an employer’s guide

Handling holiday pay ahead of the Edinburgh Festival: an employer’s guide

With the Edinburgh Festival season fast approaching, employers who hire workers on irregular hours or on a temporary basis should take heed of the potential pitfalls of a recent change in legislation around holiday pay.

The change, which came into effect on 1 April, aimed to make it simpler for employers to streamline payroll and calculate holiday pay for these types of workers. Employers should act now to gain the full benefit of the rules, avoid underpayments and prevent breach of contract claims.

Under previous rules, irregular workers were entitled to 5.6 weeks of holiday pay per year, regardless of their working patterns. This sometimes resulted in those working fewer hours having greater holiday pay entitlements than regular workers. Rolled-up holiday pay was also unlawful.

In contrast, the new rules state that an irregular worker’s holiday pay can be calculated in hours which are proportionate to the number of hours they have worked. Alternatively, they can be paid rolled-up holiday pay.

An employer now has two choices. The first is to pay the employee as and when the holiday is taken, reflecting the number of hours they take in the relevant period. To calculate this, broadly speaking, the weekly pay should be divided by the average number of hours worked per week over the previous 52 weeks. Pay should include other normal payments such as overtime and commission.

Where there are no previous weekly payments to consider for the calculation of a week’s pay, a fair representative amount can be gauged, which would consider factors such as a worker’s remuneration, comparable work, and the amount offered to the worker.

The second option is rolled-up holiday pay, which can often be the most convenient way to pay irregular workers. In this case, the worker is not paid when they are on holiday. Instead, they receive additional payments during the weeks that they do work, which make up the total amount due in holiday pay.

With this method, the rate of holiday pay which they are entitled to is 12.07% of their remuneration for the work which has been done in each pay period. An employer must ensure this payment is clearly itemised on the payslip, as a means of avoiding any potential disputes.

However, employers of irregular workers must be cautious before they take advantage of the law change. Because they only serve as the legal minimum, the new provisions won’t override what may have already been agreed under an employment contract. Therefore, if a worker’s contract states a higher holiday pay entitlement or a different way of calculating holiday pay, then that will prevail over the new rules.

Even if the contract doesn’t state how holiday is calculated, there could be an entitlement to established practice. To change that practice without reaching agreement could breach the contract and lead to expensive claims, grievances and industrial action.

Another key point is that the new rules only apply for holiday years that started on or after 1 April 2024. So, if your holiday year runs from 1 January to 31 December 2024, you may have to wait until the start of the next holiday year before you can rely on the new rules.

However, there are ways in which employers can make use of the new provisions even if their holiday dates and contracts are currently incompatible, such as agreeing with employees to change the contracts to either fit with the new rules or change the holiday year. If an agreement can’t be reached, then an employer could consider bringing the contracts to an end and offering new terms that are compatible with the new rules.

It is crucial for employers to fully understand and properly implement the new holiday pay rules. By taking proactive steps such as reviewing and making amends to contracts, as well as ensuring payslips are detailed with payments fully itemised, employers can benefit from the simplified processes and avoid potential legal pitfalls.

A version of this release is featured in Business Insider.

If you would like any more information or support, please get in touch with Robin Turnbull.

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