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Education focus: how to prepare for the new rules on holiday and holiday pay

The government has set out its response to its consultation on holiday and holiday pay and has published draft regulations which will change the law from 1 January next year.

The Employment Rights (Amendment, Revocation and Transitional Provisions) Regulations 2023 (the regulations) will make a number of significant changes to how much holiday some workers are entitled to receive and how holiday pay is calculated. It also codifies much of the existing ECJ and domestic case-law which, currently, informs how tribunals interpret the Working Time Regulations 1998. 

This blog focuses on those measures which will have a real impact on the education sector. You can read a more general overview of the changes here.

New rules for irregular workers and those who work under part year contracts

The regulations will, for the first time, define a new class of workers: ‘part-year workers’ and those working 'irregular hours'. 

The definition of a part-year worker is someone who is only contractually required to work part of a leave year and there are periods during the term of the contract where they are not required to work and won't be paid. This will include typical term-time only contracts that schools and colleges are familiar with.

Irregular hours workers are those whose working hours are ‘wholly or mostly variable’ in each pay reference period (how often they are paid). That will include zero hours workers and those under similar casual hours contracts.

Some term-time workers will meet both definitions.

Schools and colleges will be able to implement different rules for irregular and part-year workers as follows:

1.  Holiday entitlement

To nullify the impact of the Supreme Court's decision in Brazel v Harpur Trust, the regulations expressly state that irregular hour's workers and part-year workers will accrue holiday at a rate of 12.07% of the hours worked in each pay period in their first, and in subsequent years of employment. 

Their entitlement will stay in proportion to the number of hours they work but is subject to a maximum of 28 days per year.

This provision will not come into force immediately. You will only be able to start to apply this method for leave years beginning 1 April 2024. This means that those schools and colleges whose leave years, for example, run from August to July, will have to wait until 1 August 2024 to make changes. 

There are other details that you need to consider when working out holiday entitlement. For example, the regulations expressly state that where the amount of annual leave that has accrued in a particular case includes a fraction of an hour, the fraction is to be treated as zero if it is less than 30 minutes and one hour if it is 30 minutes or more than 30 minutes.

Potential issues to consider:

  • If you provide comparable full-time members of staff with additional paid contractual holiday in excess of 5.6 weeks, you must ensure your part-year workers receive the same entitlement, pro-rated to reflect the number of weeks they actually work per year to avoid claims under the Part time Workers (Prevention of Less Favourable Treatment) Regulations 2000.                   
  • You are required to set out terms that apply to a worker's entitlement to holidays as detailed in s1 Employment Rights Act 1996 and update these to reflect changes. Consider if you need to re-issue contracts.
  • The new accrue-as-you-go approach means that irregular hours workers and part-year workers without fixed working hours won't have their whole year's holiday entitlement available to them at the beginning of the year. You will need to decide if staff can book and take more holidays than they’ve technically accrued under the new rules.
  • Ensure that you maintain up-to-date records to ensure that holiday accrual is accurately recorded in each pay period and workers have access to this.
  • Until these changes come into force, you must calculate the holiday pay and entitlement of term-time workers under the existing, Brazel compliant, rules as claims could still be made in relation to that.  We suggest you take legal advice on this to minimise your exposure to potential claims.          

2.  Rolled up holiday pay

Rolled up holiday pay refers to the practice of adding an amount to a worker's pay to reflect the holiday they have earned during a particular period. It was common practice to add a percentage to the hourly pay of casual staff until the ECJ's ruled it unlawful in the 2006 case of Robinson Steel and others. There's been a tension between the law and practice since that date, as UK courts have allowed employers operating rolled up holiday pay arrangements to off-set those payments against a worker's claim for holiday pay provided certain information was provided. 

New provisions (regulation 16A) will allow employers to pay workers an additional amount on top of their hourly pay to reflect holiday pay. For every hour worked, a worker will receive an additional 12.07% of their total hourly pay as a top up to reflect the holiday they have accrued during their pay period. 

If you decide to roll up holiday pay, you must comply with the formalities set out in the regulations, including providing staff with pay slips that itemise holiday pay separately so that workers can clearly see how much holiday pay they have been paid. 

Potential issues to consider:

  • You do not have to roll-up the holiday pay of this group of workers. Most schools and colleges add holiday to the salary of term-time staff with fixed working hours, which is then averaged out over 12 months. You do not have to change this practice.
  • If you do decide to roll up the holiday pay of eligible staff, you must ensure that their pay slip clearly shows the amount they have paid for accrued holiday which should reflect the hours they have worked in that pay period.
  • You must make sure that a worker's contract is amended to reference rolled up holiday pay and complies with s1 ERA 1996.  

3. New rules about accrual of leave during periods of illness or whilst on other statutory leave 

The regulations insert a new provision (regulation 15C) to calculate how much holiday a part-year or irregular hours worker will accrue if they are absent from work either due to sickness, or because they are on maternity, shared parental leave or another type of statutory leave. 

Employers are required to calculate the average number of hours worked per week during the ‘relevant period’ (which is 52 weeks) and then multiply this by 12.07% to find the number of hours annual leave the worker accrues during each week of absence. That figure is then multiplied by the number of weeks of absence. You exclude weeks where the worker is on sick leave or statutory leave but do count those weeks where they were not required to work. 

Other changes that apply to all staff

1. Changes to holiday pay

As regular readers of our holiday pay blogs will know, employers have to look to ss221 to 224 of the Employment Rights Act 1996 to determine how to calculate a week's paid holiday. Those provisions weren't designed with holiday pay in mind and have been subject to a number of binding court decisions which tribunals have to follow. 

The regulations effectively codify these decisions. Ss 221 to 224 are amended to include the following payments when calculating a week's pay for holiday pay purposes only: 

  • Payments that are intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract.
  • Payments relating to professional or personal status relating to length of service, seniority or professional qualifications.
  • Other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date.

The government has decided against introducing a single annual leave entitlement because it has rejected the idea that all 5.6 weeks should be paid at the same rate. This means that schools and colleges can (if they wish to) distinguish between the two existing rates of holiday pay so that workers continue to receive four weeks at normal rate of pay and 1.6 weeks at basic rate of pay. 

Potential issues to consider:

  • Most education contracts, work out holiday entitlement (and pay) at the beginning of the holiday year, add it to the worker's salary and then pay it in 12 equal instalments. That's fine if you are already including the payments set out above in your calculation. If you don't, then you may need to top up payments (technically when they go on holiday) to ensure that staff receive the correct amount of holiday pay.
  • The regulations do not define what ‘regularly’ means or ‘intrinsically linked’ and schools and colleges will need to consider how courts have approached these questions in the event of a dispute. 

2. New rules about rolling over holiday from one leave year to the next

The regulations allow all workers to carry over four week's leave in the following circumstances:

  • Where they have not had a ‘reasonable opportunity’ to take it or been ‘encouraged’ to take it.
  • Where they have not been told by their employer that if they don't take all of their leave, they will lose the right to take it (often referred to as ‘use it or lose it’).
  • If they have been wrongly treated as self-employed and haven't been given paid leave.

Where a worker hasn't taken all of their leave because of illness, they can carry it forward, but have to take it within 18 months from the end of the leave year it accrued. This will bring the WTRs in line with decisions of the ECJ and domestic courts.

Potential issues to consider:

  • Carry over only applies to reg 13 leave (sometimes referred to as ‘Euro’ or ‘Directive’ leave). Your contracts should expressly state that Euro leave will be taken first to limit carry over. It's particularly important to review your contracts following the Supreme Court's comments in Agnew which said that leave isn't taken in a particular sequence, unless there is an agreement in place which sets this out (you can read more about that decision here)
  • Most staff members engaged in education settings have fixed periods in their contracts when they are not required to work (such as during school holidays) and will, therefore, be able to take a rest from their duties. You may, however, need to, at least, ‘encourage’ those members of staff that use their holiday to catch on work, to take sufficient rest. 
  • Ensure that contracts set out when staff are deemed to take paid leave, or the process they have to follow to take holiday. 
  • Ensure that any member of staff who receives rolled up holiday pay does take time off and is not engaged 52 weeks a year. 

What should you do now? 

Term-time workers

That depends on what approach you adopted after the Supreme Court's decision in Brazel.

If you decided to sit tight and await the outcome of the consultation, you may not have to make any changes to the terms and conditions of your term-time staff. You'll need to check that the amount of statutory holiday you provide them aligns with the methodology set out in the new regulations. However, you should anticipate that some staff who have been underpaid my bring claims against you and take advice to minimise risk.

If you increased the amount of holiday you provided to term-time workers, you will not be able to reduce this without their agreement. You'll need to go through a consultation process, explain why you want to reduce the amount of paid holiday they receive, and when you want this change to take effect (see above). The government consultation has some analysis which may help you to illustrate why the Brazel judgment resulted in term-time only staff receiving more holiday than part-time staff working the same numbers of hours each year and was considered to be unfair.

If these changes impact 20 or more members of staff you will need to collectively consult with trade union rep's or employee representatives first. If holiday is a something that is covered in your collective bargaining agreement with a union, you may be able to amend individual terms of employment if the collective agreement has been incorporated into their contract. 

You have time to do engage in collective consultation before the implementation date of this part of the regulations.

If you incorporated new contractual holiday pay terms in your contracts that anticipated that the law was likely to change, you should be able to rely on these to reduce the holiday entitlement of term-time staff. However, the clause must be written in clear terms and any ambiguities will be construed in the worker's favour - not yours. 

Contract reviews

The provisions relating to the roll-over of holiday must be reflected in your workers' contracts. Section 1 of the ERA sets out the information that has to be included in respect of holiday and holiday pay. If that information changes, you are required, under s4, to give the worker a written statement containing the new terms, no later than a month after those changes come into force.

You may need to issue a new s1 statement or contract of employment to comply with the rules which came into force from 6 April 2020. Staff that you engaged prior to this date are unlikely to have legally compliant contracts and we recommend that you take advice to ensure that you include all necessary information.   

Need more help?

If you have underpaid your part-year workers, we can help you to minimise the risk of claims. Please contact our part-year holiday pay specialist Jenny Arrowsmith to find out how we can help you.

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Our exceptional team of employment lawyers have extensive expertise in the education sector and can provide invaluable practical advice on this complex matter.  Jenny Arrowsmith leads our education sector team and will be more than happy to provide the support you require.