Last week, the government published its response to two holiday pay consultations (‘Retained EU employment law’ and ‘calculating holiday entitlement for part-year and irregular hours’ workers’), which closed in March and July 2023, respectively. It also published draft regulations to implement its proposed changes. It is currently anticipated that these regulations will take effect from early January 2024.

Please find a link to the full consultation response here. For ease, we have outlined the key announcements and proposed changes below:

• The two existing pots of holiday entitlement (i.e. 4 weeks under EU law and 1.6 weeks under UK law) will not be consolidated into one pot of 5.6 weeks (as was originally proposed by the government), meaning employers will need to continue to navigate the two sets of rules and requirements for the different types of leave. However, we understand that further guidance will be provided on what types of pay elements should be included in both calculations.
• Employers will be able to calculate holiday entitlement for ‘irregular’ hours workers and part-year workers using an accrual method (12.07%). The draft regulations define what is meant by an ‘irregular hours’ worker and ‘part-year’ worker. 
• Rolled-up holiday pay will be lawful for ‘irregular hours’ workers and ‘part-year’ workers only and will be based on a worker’s total earnings in each pay period.
• Introduction of a 52-week reference period to calculate holiday entitlement for ‘irregular hours’ workers on sick/parental leave.

There are a number of practical and commercial considerations with regards to the above announcements and incoming changes from January 2024. We also anticipate that these changes may receive wide-spread media coverage and employers should therefore be ready for any potential questions and challenges from workers (and unions), in regards to any potential changes going forwards but also the historical position / approach. As such, employers should be aware of the extent of any potential historical holiday pay liabilities when implementing changes to the current approach.

Please reach out to one of our Fair Pay specialists if you would like to discuss the consultation response in further detail.

We will also be holding a webinar to discuss these changes so watch this space for the invite, to be issued shortly.

Your contacts

Helen Kaye, Partner, Tax

Kathryn Dooks, Partner, Deloitte legal

Amy Douthwaite, Director, Deloitte Legal

Christopher Robson, Director, Tax 

Ben Baldwin, Associate Director, Tax

Bronagh MacDonald, Consultant, Tax

James Cook, Consultant, Tax

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