Has the government given a holiday pay bonus?
Previous case law position
The four weeks’ annual leave entitlement set out in regulation 13 Working Time Regulations 1998 (WTR) and the additional 1.6 weeks’ annual leave in regulation 13A WTR were already required to be paid at different minimum rates. This was because of the impact of EU case law which required holiday pay equivalent to “normal pay” to be paid in respect of the regulation 13 annual leave.
New statutory wording
The WTR were amended with effect from 1 January 2024 to expressly provide that when calculating holiday pay for regulation 13 annual leave the following types of payment must be included:
- payments, including commission payments, which are intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract
- payments for professional or personal status relating to length of service, seniority or professional qualifications; and
- other payments, such as overtime payments, which have been regularly paid to a worker in the previous 52 weeks.
Tip. Holiday pay for regulation 13A annual leave (and any extra contractual annual leave) can continue to be calculated based on the basic rate of pay only for regular hours workers.
Tip. If you never adjusted your holiday pay approach to reflect the EU case law about “normal pay” , you’ll need to remedy this for at least four weeks’ annual leave now that this concept has been enshrined in legislation.
What type of leave is being taken?
The new statutory wording unfortunately sheds no light on how to tell which type of annual leave is being taken when. This isn’t helped by the fact that UK case law has held that different types of leave are not necessarily taken in sequence.
Tip. If you pay annual leave at two different rates, make it clear in employment contracts that for the purposes of holiday pay calculations the first four weeks taken in a holiday year will be deemed regulation 13 annual leave (see The next step ). If you pay all annual leave at the higher “normal pay” rate, this is much less of an issue.
Bonus problem
The new statutory wording in the first bullet point above is arguably wide enough to potentially include irregular payments such as annual bonuses linked to performance. Whilst it wasn’t the government’s intention to include such payments in the holiday pay calculation, the wording isn’t clear and so there’s now a risk that workers might bring claims for underpaid holiday pay, arguing they’re entitled to bonus as part of holiday pay. They may even argue that annual bonuses not linked to performance are sufficiently “regularly paid” and so fall under the third bullet point.
Tip. If you’ve never included bonuses in holiday pay calculations, continue to exclude them until case law decides otherwise. Operate on the basis workers should receive the same holiday pay as the pay they would receive if at work and working.
For a written statement of employment particulars, visit https://www.tips-and-advice.co.uk , Download Zone, year 26, issue 3.
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