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Holiday pay shake-up to benefit zero hours and temporary workers

Paloma Kubiak
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Paloma Kubiak

The Government is consulting on a change to the way holiday pay is calculated, which could boost the pay packets of more than a million temporary and zero hours contract workers.

In the latest post-Brexit review of retained EU law in the UK, the Government has set its sight on the Working Time Regulations.

As part of the Department for Business and Trade’s ‘Smarter Regulation to Grow the Economy’ consultation, it proposes to “reduce the administrative burden and complexity of calculating holiday pay.

As such, it wants to introduce rolled-up holiday pay, so that workers can receive their holiday pay with every payslip.

The move, if enacted, would also merge the current two separate leave entitlements into one pot of statutory annual leave, while maintaining the same amount of statutory leave entitlement overall.

Rolled-up holiday pay: What’s the big deal?

It may seem like an innocuous change, but actually this could represent a major shake-up to holiday pay calculations and awareness of entitlement, especially for temporary, casual, zero hours workers and contractors.

According to temporary working network IWORK, if the proposals become plans (no timeline given as yet), it is expected to boost the income of the UK’s 1.6 million temp workers by thousands of pounds every year as it essentially ensures they’re paid holiday pay.

Currently, many temps don’t know they’re entitled to be paid for holidays and they usually get their normal pay and then holiday pay when they take leave.

If holiday pay is rolled-up, it is paid at the same time as normal pay (merges the two separate leave entitlements) so workers are guaranteed to receive it, as opposed to being paid when the worker takes holiday. It should also raise awareness of leave entitlement and pay for these workers who may not know about this as cash could be unknowingly pocketed by agencies.

‘Long overdue and life-changing for many workers’

Julia Kermode, founder of IWORK, said: “As things stand, hundreds of millions of pounds of holiday pay has been left unclaimed because temps don’t realise they’re entitled to it. These workers aren’t helped by the handful of unscrupulous umbrella companies and recruitment agencies that go out of their way to make sure this statutory right isn’t claimed, before keeping it themselves.

“At a time when every penny counts, the move to roll up holiday pay will help many temps make ends meet. It will also go a long way to stopping dodgy businesses from lining their pockets. Needless to say, the sooner this is introduced, the better.”

Fred Dures, founder of specialist payroll auditor, PayePass, added: “Lawfully rolling-up holiday pay is long overdue. For far too long, temps have lost out when it comes to claiming holiday pay and are worse off financially as a result. It’s no overstatement to say that it will prove life-changing for many of the UK’s temporary workers.

“What’s needed now is an imminent roll-out so that dodgy practices can stop, and contractors receive their full entitlement.”

Kate Palmer, HR Advice & consultancy director at Peninsula, said exactly how the rolled-up holiday pay will be shown on payslips has not yet been determined as the Government consultation will close on 7 July 2023.

“However, it is likely that each payslip will need to clearly set out the element of pay that is attributable to holiday pay,” she said.

Palmer added that the proposed changes to the Working Time Regulations include allowing rolled-up holiday pay to be paid at 12.07% of a worker’s pay on each payslip and creating a single statutory leave entitlement of 5.6 weeks (merging the four weeks’ annual leave derived from EU law and the 1.6 weeks’ annual leave that comes from domestic law).

She also confirmed that rolling-up holiday pay was a practice made unlawful several years ago, “but now the Government is proposing to make it lawful again.”