What businesses need to know about recent updates to payroll

November 15, 2023

The Department for Business and Trade has recently released feedback on two major consultations concerning payroll and holiday entitlements.

Changes in holiday entitlement calculation

The Government has opted against adopting a 52-week reference period for holiday entitlement.

Now, employees who work irregular hours or those working part of the year will accrue holiday at the end of every pay period at a rate of 12.07 per cent of the hours that they have worked in that period.

For example:

John works 25 hours in a monthly pay period. 12.07 per cent of the 25 hours John worked is 3.0175 hours. Therefore, John has accrued 3.0175 hours annual leave for this pay period.

Where the amount of annual leave accrued includes a fraction, such as in this example, 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.

In the example John’s accrued 3.0175 hours would therefore be treated as three hours.

This adjustment simplifies the process for businesses with employees who lack a consistent work schedule.

Preservation of current holiday pay rates

The current structure of holiday pay, under Regulation 13 and Regulation 13A, will continue. Workers will still receive:

  • Four weeks of holiday at their usual pay rate
  • An additional 1.6 weeks of holiday at their basic pay rate

This decision maintains consistency and clarity for both employers and employees.

Introduction of rolled-up holiday pay

Rolled-up holiday pay will be allowed, but exclusively for employees with irregular hours or those who work part of the year. This modification introduces greater flexibility for businesses in managing holiday pay for these types of employees.

Timeline and legal requirements for implementation

There are no specific dates set for implementing these changes, as they require legal action.

Businesses should look out for further updates and be ready to modify their payroll systems once these changes are legislated.

Influence and anticipation from the CIPP

The Chartered Institute of Payroll Professionals (CIPP) has significantly influenced these updates, with many of their recommendations being adopted by the Government.

However, both the CIPP and businesses must await further instructions and documentation from the Government regarding the practical application of these changes.

Impact on your business

These changes mean businesses will need to make adjustments in calculating and paying holiday entitlements, particularly for employees working irregular hours or part of the year.

Staying updated and prepared

We advise regularly consulting the CIPP’s policy hub and other trustworthy sources for the most recent information and guidance. Being well-informed is crucial for seamless payroll operations and legal compliance.

For any queries or assistance in adapting to these new payroll updates, please reach out to us.

Further reading

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