Employment Advice

Holiday pay entitlement

Managers are on the look-out for changes in employment law following Brexit. Preparing for new holiday entitlement and pay calculations.

11 Sep 2023

Team name
Esther Marshall

Esther Marshall

The Retained EU Law (Revocation and Reform) Act 2023 became law in June, setting out how EU-based laws are to be treated in future.

Most employment law will continue to stand, giving employers some certainty, but one immediate priority for reform is the calculation of holiday entitlement and pay, as the Government is keen to simplify calculations.

Under current regulations, most people are entitled to 5.6 weeks of holiday a year, or the equivalent pro rata, made up of four weeks of EU regulated leave and 1.6 weeks of domestic regulated leave.

Problems arise because the two entitlements have different rules for calculating pay.  For the four weeks of EU leave, calculations must include bonus or overtime payments, and generally this cannot be carried over into a new holiday year.

But under the domestic provision, only basic rate payment is required for the 1.6 weeks of holiday pay, and this holiday can be carried over with written agreement.

“We don’t know yet whether the government will decide that all pay should be at full rate for the whole 5.6 weeks, including payments such as bonuses, commissions and overtime, or at the basic rate,” explained employment law expert Esther Marshall of Mullis & Peake solicitors.

“Unfortunately, one side or the other is likely to be disappointed.  Employers may be focused on the potential burden of additional costs if the calculation results in an uplift, but equally there may be staff disputes if the outcome translates as less in pay packets.”

The other proposal to simplify holiday pay is by using rolled-up holiday pay, by which workers receive their holiday pay every working week through an extra percentage on top of their earned pay, instead of when they take time out for holiday. Presently, this is not allowed and holiday pay must be paid when taken.

Esther added:  “On the positive side, some employers may find that this could simplify holiday calculations for irregular hours but, if implemented, it will require contracts and payslips to be updated.

“The other issue with rolled-up holiday pay is that can lead to workers not taking time out because they struggle to budget for holiday times without income.  This can have a negative effect if workers suffer stress and burnout through a lack of downtime, so it may require a system to ensure everyone takes their annual leave.”

M&P Commentary

Esther Marshall, specialist in Employment law, said:

“Calculating holiday entitlement, and pay, can be very complicated. This is even more so now that part time and flexible working is on the increase. If the government does decide that all holiday pay should be calculated at the same rate, this may make things easier for employers, and clearer for employees. There is a risk that an employer who doesn’t implement any changes could be open to a claim for an unlawful deduction from salary. Taking expert advice at an early stage will be key in keeping up with any changes.”


Ranked highly in Romford and Brentwood for solicitor firms

The service I received from Allison was exceptional. Always highly professional and informative.
Mullis and Peake are very efficient, professional and friendly company to deal with. Excellent service throughout.
Excellent, swift service from Esther at Mullis & Peake. Showed clear expertise in her field & walked me through everything patiently & thoroughly.
Company and Commercial
I found the service provided was excellent from start to finish, with our requirements met in a timely manner throughout.
Staff very helpful and friendly. Trudi was easy to talk to and to understand the procedure.
Dispute resolution
We contacted Martyn to deal with a sensitive Will dispute and we can’t thank him enough for his commitment and hard work.
Residential Property
Very prompt. Experienced. Expert. Friendly.
Commercial Property
Excellent service and far quicker than previous negotiations using a different solicitor.
At all times I was kept informed about the progress of the case and everything was completed in a timely fashion.
Personal Injury
Martyn undertook and guided me through the lengthy process [of a personal injury case], and after much work, achieved a successful result.

Related News insights

Employment Advice, Employment Advice (For Business), Legal, Employment Disputes
Why employers need a reflective response to employee beliefs
Legal, Wills & Power of Attorney
Can an executor change a Will?
Movers & Shakers, Mullis & Peake
Saying Goodbye to Roger and Jenny
Commercial Property, Legal, Commercial Property Disputes
Amendments to the General Permitted Development Order