New rules aim to simplify annual leave calculations

The Government has published new rules on holiday pay and leave calculations for people on irregular or part-year contracts, including term-time workers, which aim to simplify things after a recent Supreme Court ruling.

Annual Leave


The UK Government has tabled new laws which aim to simplify the issues around holiday pay calculation for people who work irregular hours or part of the year who are on permanent contracts.

The changes are on several areas, including:

  • Rolled up holiday pay – rolled up holiday pay will become lawful again for irregular hours workers, including zero hours workers, and part-year workers. It must be calculated based on total earnings in the pay period.
  • Leave entitlement for irregular hours workers and part-year workers – this will be calculated using an accrual method. Leave will be accrued based on 12.07% of hours worked in the pay period, regardless of whether that pay period is monthly, weekly, or daily. An annual leave accrual method will be introduced for when irregular hours workers and part-year workers take sick leave or maternity/family related leave. “Irregular hours worker” and “part-year worker” [such as term-time workers will be defined in law and will include agency workers if they meet the definitions.
  • Covid-related holiday provisions change – provisions allowing workers to carry over four weeks of leave into the next two leave years if it was not reasonably practicable for them to take it due to the pandemic, will be removed. Normal rules will apply from 1 January 2024, which means that 1.6 weeks can be carried over to the next leave year where there is written agreement between employer/employee. Any leave carried over due to Covid that has been accrued, but not taken by that date must be taken before 31st March 2024.

The new model on annual leave departs from the confusion caused by a recent Supreme Court decision and aims to prove a simpler accrual model accounting for varying hours.

Kate Palmer, HR Advice and Consultancy Director at Peninsula, said:“The guidance will be welcomed by employers, ending lots of confusion around calculating holiday entitlement for part-year workers following the July 2022 ruling in the Harpur Trust v Brazel case. There are proposed changes to several areas of law but no set date for any of these to be implemented, as yet. Laws will still need to be made for any of these proposed changes to take effect, but employers should take heart from this new guidance, ensuring they stay up to date on any legislative changes.”

Dave Chaplin, CEO of contracting authority ContractorCalculator, added: “These reforms are most welcome and will provide much-needed clarity and fairness around holiday pay for contractors, especially those working through umbrella companies. Let’s hope we will now have a fairer and transparent system for all and that we see less “holiday-pay skimming” by unscrupulous operators in the market which was highlighted some years ago on BBC’s MoneyBox when workers were seeing underpayment on their holiday pay.

“Whilst the new regulations will simplify the holiday pay calculation and work to remove any confusion for employers and workers, it is imperative that workers check their pay statements to ensure that 12.07% holiday pay is applied correctly and raise any issues with their hirer should any discrepancy become apparent.”

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