Irregular-hour workers in the UK will be entitled to receive holiday pay ‘rolled-up’ as part of their pay, in a move aimed at ensuring short-term staff receive their holiday pay.

The reforms simplify holiday pay calculation for irregular hours and part-year workers, which would include many agency workers.

The government’s announcement is in response to the consultation on reforms to retained EU employment law and the consultation on calculating holiday entitlement for part-year and irregular hours workers.

The Retained EU Employment Law consultation sought views on two proposals: the first was on creating a single annual leave entitlement of 5.6 weeks and the second was on introducing ‘rolled-up’ holiday pay.

Rolled up holiday pay (RHP) is a model where a worker receives an enhancement (12.07% of pay) with every payslip to cover their holiday pay, as opposed to receiving holiday pay only when they take annual leave.

Other workers will continue to accrue annual leave in their first year of employment as they do now by receiving 1/12th of the statutory entitlement on the first day of each month and to pro-rate it thereafter.

The Recruitment and Employment Confederation said it welcomes the reforms.

REC Chief Executive Neil Carberry said the REC supports the announcement “because it recognises that our labour market relies on people who choose to work in different ways.” Carberry said that making sure ‘employers can easily comply with the law and workers get their holiday pay is important’ adding that yesterday’s changes deliver that.

“The REC argued for more clarity for employers in how they calculate accrued holiday pay and so plans to set a method in stone via legislation in the new year will help,” Carberry said. “There are more than four million workers who have a completely irregular, non-repeating working pattern and that needs to be recognised by enacting further reform of the Working Time Regulations so they better reflect modern ways of working. The law must enable different forms of contracts, not hammer them into one form.”

Earlier this week the REC publicly raised its concerns over the Gangmaster and Labour Abuse Authority’s holiday pay brief. The GLAA had maintained that using a formula of 0.1207 or similar is not a valid method of calculating annual leave entitlement. The GLAA cited the Supreme Court’s judgement in The Harpur Trust v Brazel [2022], in which the Court ruled that the use of a percentage method in calculating the holiday entitlement of workers with irregular hours is inconsistent with the Working Time Regulations 1998.

Tania Bowers, Global Public Policy Director at the Association of Professional Staffing Companies, said, "The plans outlined are, in our view, the only fair way to pay irregular workers and ensure they are no longer at risk of losing accrued holiday pay due to the way they are employed. However, it is now important for recruiters and umbrella companies to assert to workers and end clients that individuals must take the holiday or pay they are owed and the Working Time Regulations."

Also welcoming the recent reforms is umbrella company compliance specialist, PayePass.

PayePass said that by not rolling up holiday pay, thousands of temporary workers have their holiday pay unfairly withheld, meaning they lose out on potentially thousands of pounds every year.

PayePass CEO, Julia Kermode, said, “This is huge news. By allowing rolled up holiday pay, the UK’s growing number of temps and irregular-hour workers will receive what’s legally theirs, which could be worth thousands for every worker.”

“Temporary workers who qualify will receive holiday pay when they’re paid their wages, which means they’re guaranteed to receive it,” Kermode said. “All too often, these workers don’t claim holiday – partly due to the fact that they don’t know they’re entitled to it and partly due to the holiday pay being unfairly withheld from them.

“But now there are no excuses for temps to receive what’s lawfully theirs. Rolled up holiday pay will help hundreds of thousands of workers pay their bills at a very difficult time. It goes without saying that the move to make this lawful will also stop those dodgy businesses from deliberately withholding it from their workers,” Kermode said.

Kermode added, “The government has stopped short of announcing a timeline for the introduction of rolled up holiday pay – but it’s all eyes on the Budget this month, where we hope that the Chancellor will set a date in stone.”

Dave Chaplin, CEO of contracting authority ContractorCalculator said “These reforms are most welcome and will provide much-needed clarity and fairness around holiday pay for contractors, especially those working through umbrella companies. 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.”

Crawford Temple, CEO of Professional Passport, a UK independent assessor of payment intermediary compliance said, “"There were a number of anomalies in the legislation that the court identified in the case of Harpur Trust v Brazel last year and these latest changes address the issues and simplify the calculations of pay.  Let's hope that the new legislation will ensure that workers are now treated fairly and will benefit from a transparent and compliant process to receiving the holiday pay that is due to them and that many of the reported issues on providers withholding holiday pay will become a thing of the past."