A much-needed change is coming to holiday entitlement for zero-hour, irregular-hour, and part-year workers. The change aims to simplify the complex method of calculating holiday entitlement for such workers, and this article will explain the changes, their effects, and when they occur.
How Will Zero-Hour Holiday Entitlement be calculated?
Under the new method, Zero-Hour workers will now accrue holidays based on 12.07% of hours worked in each pay period (for example, weekly or monthly). This means, if an employer works 20 hours in a week, their accrued holiday entitlement would be 2.41 hours: 20 hours x 12.07% = 2.41 Hours
It's worth mentioning that regardless of the calculation method, zero-hour workers are still entitled to a minimum of 5.6 weeks (28 days) of statutory holiday per year.
How To Use Holiday Entitlement
There are 2 methods a zero-hour contract worker can use for their holiday entitlement, each with their own pros & cons:
Paid when leave is taken: this is the traditional method. When an employee books approved leave, they are paid their regular hourly rate for the number of holiday hours they take. In the previous example, if the employee takes 2.41 hours of leave, they'd be paid for 2.41 hours at their regular rate.
Rolled-up holiday pay: This is a new option. Here, the 12.07% holiday pay is added to each paycheck throughout the year. So, in each pay period, the employee's regular pay includes a portion of their holiday entitlement. This means they wouldn't receive a separate payment when taking leave.
The key difference between rolled-up holiday pay and being paid when leave is taken is how you receive your holiday entitlement. With rolled-up pay, a portion of your holiday pay is included in each paycheck. This means you don't lose out on potentially higher regular pay during peak times by taking time off over working days, which can benefit those who prioritize maximizing their income. However, it's important to remember that taking actual leave is crucial for well-being. The traditional method, where you're paid when leave is taken, might be better for those who value a clear separation between work and free time. Ultimately, the best option depends on your circumstances and how you prioritize work and leisure.
When Does the New 12.07% Entitlement Rule Apply?
It depends on your holiday year. If it runs from April to March, the new rules will apply immediately from April 2024. However, if it follows a different schedule, such as January to December, the changes will apply in January 2025.
Conclusion
Review your holiday policies to comply with the new law if your company has zero-hour, irregular-hour, or part-year employees. Understanding the new 12.07% rule is important for employers and employees alike, as you should know if/how it affects you.
To ensure accurate holiday pay calculations under the new rules, employers must maintain good records of hours worked by zero-hour and other irregular-hour workers. This includes keeping track of pay slips, timesheets, or any other documents that accurately reflect the hours worked in each pay period. If you have any questions or worries, please contact us at Short and Sons Accountants.