Rolled-up holiday pay: When and how can you use it?

April 30, 2024

By Nicole Brendel

Rolled-up holiday pay is a new way of simplifying the thorny issue of holiday pay, under big changes to the law which were brought in on 1^st April 2024. Our employment team is here to help explain the new rules on rolled-up holiday pay and share some useful top tips.

As we covered in our previous article here, employers need to make sure they are up to date on the recent changes to the holiday rules.

These rules now include a new option for employers to pay rolled-up holiday pay to irregular hours employees or casual workers, instead of having to make complex pay calculations each time a worker takes annual leave.

What does rolled-up holiday pay mean and when can employers use it?

Rolled-up holiday pay is an option for calculating the holiday pay of “irregular hours workers” (those whose hours of work vary rather than being fixed) and “part year workers” (those who have gaps in their employment during a year).

To calculate the holiday entitlement of those workers, employers can look at their hours worked at the end of each pay period and add the equivalent to 12.07% of those hours to their annual leave entitlement.

For holiday pay, however, employers have the option of also adding a fixed 12.07% onto the worker’s pay during each pay period and paying them that every single pay period – regardless of whether they have taken any holiday during that period.

This can only be used for irregular and part year workers, not fixed hour employees.

What are the pros and cons of rolled-up holiday pay?

For employers which employ a lot of casual or part-year workers, rolled-up holiday pay will make it much simpler to work out how much their workers should be paid each time they take annual leave and avoid the need for complex calculations. This can reduce the admin burden on payroll and HR teams and indirectly save costs.

However, it’s worth saying that rolled-up holiday pay can be slightly more expensive because it means that employers have to pay all of affected workers’ holidays at the same rate (12.07%), whereas the Working Time Regulations do allow some holidays to be paid at a lower rate if rolled-up holiday pay is not used.

If in doubt about whether this is right for your business, it’s important to take legal or accountancy advice.

What should employers do now?

Employers should consider:

• Reviewing their annual leave systems to work out changes you need to make;
• Updating your employment contracts and policies to reflect any changes;
• Having open conversations with workers in terms of how you are calculating their holiday pay;
• Auditing payroll systems as necessary;
• Seeking legal advice if you are unsure of how these updates might affect some of your workers. Remember that these changes are now in force!

If you require advice or assistance on holiday pay compliance, contact Nicole Brendel on nbrendel@darwingray.com or 029 2082 9100 for a free initial chat to see how we can help you.