Blogs

It’s the time of year when our thoughts turn to a summer break – something that all contractors are entitled to. With new holiday pay regulations coming into force on 1 April 2024, we look at what they are and how they will affect recruiters.

What are the new regulations?

The Department for Business and Trade published its new guidance around Holiday Pay and Entitlement reforms on 1 January 2024. It’s aimed at simplifying the calculations surrounding pay and entitlement covered in the Working Time Regulations and affects: 

• Rolled-up holiday pay

• Part-time workers and those who work irregular hours

• Rates of annual leave and holiday pay 

The changes mean that irregular-hours workers and part-year workers will have their holiday entitlement accrual method and rolled-up holiday pay defined; that a method is being introduced to calculate statutory holiday entitlement for those workers; that when those workers take maternity or family-related leave (or are off sick) a method is in place to calculate how much leave they are entitled to; that ‘normal remuneration’ is defined in relation to their 4 weeks’ statutory annual leave; and that rolled-up holiday pay is being introduced as an alternative method with which to calculate holiday pay.

We discussed the unfairness of rolled-up holiday pay and the issues surrounding it here.

How does this affect contractors?

If a contractor works irregular hours they might previously have been subject to an unlawful practice called ‘rolled-up holiday pay’. That’s where an employer pays them a small amount (12.07% of their normal pay which equates to 5.6 weeks of holiday entitlement each year) in addition to their usual pay but in return, they receive no pay when they take holiday leave. The government is now allowing rolled-up holiday pay, despite it potentially discouraging people from taking the leave they’re entitled to, citing the difficulty employers face when calculating exactly how much leave their employees are entitled to. 

Despite the European Court ruling that rolled-up holiday pay violated the European Working Time regulations, many employers still continue with the practice, sometimes coercing their employees into receiving rolled-up holiday pay. While some contractors welcomed the practice because of the increased weekly or monthly amount they were paid, others were left without an income during their holidays. In addition, some unscrupulous, non-compliant umbrella companies were retaining contractors’ unclaimed holiday pay, therefore depriving them of the income that they were entitled to. The new rules mean that umbrella companies must make holiday pay entitlement clear to their contractors, many of whom will be substantially better off.

How does this affect recruiters?

The new rules make it simpler for recruiters who don’t use the services of an umbrella company to ensure that their contractors are receiving the full amount of holiday pay and entitlement to leave which are now linked and cut the amount of costly administration they have to complete. Nevertheless, they will still have to ensure that contractors are aware of the full amount of leave that they are entitled to and they’ll have to make sure that their contractors understand the full implications of the changes and reflect the new amounts of take-home pay on payslips and remittance advice – something which, if they’re dealing with hundreds of contractors every week, can be an onerous chore. 

However, if they partner with a compliant and responsive umbrella company like Payme  they’ll find that all the administration, the contract reviews, the updating of payroll systems, the new calculations that they’ll have to do, the leave request procedure reviews and the act of communicating all this to their contractors can be done for them. 

Because of the professional payroll services we offer to our recruitment partners as well as our sophisticated software systems, we’re able to handle these changes seamlessly on their behalf, ensuring not only that contractors are aware of the leave they’ve accrued and taken, but also act upon the new rules, guaranteeing that contractors are paid accurately and promptly. We’ll also update all contractors’ KIDs so they understand fully how the new rules affect them.

We deal with over 4,000 contractors every week on behalf of more than 250 recruitment agencies, ensuring that their processes and procedures are FCSA compliant and offer a variety of high-quality, low-cost Umbrella, CIS and PEO products to make recruiters’ lives simpler and less bureaucratic. 

If you need more information about how the new Holiday Pay Regulations will affect your business or the contractors you deal with, you can call us for a no-obligation, confidential chat with one of our experienced customer service team. Call us on 0333 200 0845, email us at [email protected], or fill in the contact form here.