Holiday Pay Reforms – What Employers Need to Know

Back in January 2024, the Government confirmed significant changes to how holiday pay should be managed. As we move further into 2025, many employers will start to see the practical effects of these reforms, particularly as new leave years begin and payroll cycles reset.

These updates aim to provide greater clarity around entitlement, ensure fair pay for all workers, and reduce disputes about holiday accrual and carry-over. Below is a breakdown of the key changes and what they mean in practice.

Carrying Over Annual Leave

Employees now have a legal right to carry forward untaken holiday into the next leave year if:

• They weren’t given a real opportunity to use their leave during the current year.

• The employer didn’t actively encourage or remind them to take it.

• Staff weren’t made aware that unused holiday would otherwise be lost.

• Their right to holiday pay or payment in lieu wasn’t fully recognised.

This makes it essential for employers to proactively remind staff about using their leave and clearly communicate their holiday policy. A failure to do so may result in additional carry-over obligations.

Statutory Holiday Entitlement

The statutory entitlement remains at 5.6 weeks per year, but it is now clearly divided into:

• 4 weeks at “normal pay” – this includes commission, contractual overtime, and pay linked to seniority, experience, or performance.

• 1.6 weeks at “basic pay” – calculated solely on contracted hours at base rate, without additional enhancements.

This distinction ensures employees are not financially disadvantaged when taking their full entitlement.

Rules for Irregular and Part-Year Workers

One of the biggest areas of reform relates to individuals who do not work standard hours, such as seasonal staff, part-year workers, or those on variable-hour contracts.

• Holiday accrues at 12.07% of hours worked in each pay period.

• For leave years starting before 1 April 2024, the old rules continue – employees are entitled to 5.6 weeks’ leave, paid at the point it is taken.

·       For leave years starting on or after 1 April 2024, employers now have a choice:

Rolled-up holiday pay – where holiday pay is added to regular wages instead of being paid when leave is taken (this must be shown clearly on payslips).

Banked leave accrual – where holiday builds up as a separate entitlement, to be used at a later date.

This flexibility is designed to give both employers and employees greater clarity, while reflecting the realities of irregular working patterns.

Kirby HR Consultancy Is Here To Help And Advise

1. Review Contracts & Policies – ensure they reflect the new holiday pay rules and carry-over rights.

2. Communicate Clearly – remind staff about their entitlement, how pay will be calculated, and whether rolled-up holiday pay is being used.

3. Keep Accurate Records – especially for irregular workers, track hours and accruals carefully to avoid disputes.

4. Plan Ahead – encourage employees to spread leave throughout the year to avoid end-of-year bottlenecks.