In a bid to reduce the administrative burden on employers, the government has announced plans to allow rolled-up holiday pay. The plans were set out in the Smarter Regulation to Grow the Economy policy paper published in May 2023 and are one of a number of changes proposed to the Working Time Regulations, as the UK government continues to navigate a post-Brexit legal landscape.
Rolled-up holiday pay is where an employer includes an additional payment in respect of holiday entitlement within a worker’s regular wages instead of providing separate paid time off. It can be common in jobs in the hospitality, retail and other service industries, where workers may be on part-time or zero-hour contracts, notwithstanding the fact that technically it is a practice that is unlawful under the Working Time Regulations.
Workers are entitled to a minimum of 5.6 weeks annual leave per year, equating to 28 days for a full-time worker, of paid time off per annum. Under the new proposals, employers will have a choice between using the existing 52-week holiday pay reference period or rolled-up holiday pay to calculate holiday pay for their part-time or temporary workers.
The proposals will also allow employers to choose to use rolled-up holiday pay to calculate and pay the holiday pay of full-time workers. If employers do this, it is important they make staff aware of this change and this payment must be clearly marked on a worker’s payslip as holiday pay.
This proposal is likely to be welcomed by employers and, in fact, many workers. Rolled-up holiday pay offers a transparent and fair system that enables both employers and their staff to work out entitlements consistently and simply. Employers do, however, need to be cognisant of the need to demonstrate that the holiday pay is a genuine addition to the hourly rate.
Keely Rushmore is an employment partner at Keystone Law