Holiday pay, temporary workers and the need to get it right

“How is holiday pay calculated for agency workers?”

Sound familiar? Recruitment agencies invest a great deal of time and energy in talking with temporary workers about all manner of role-related issues, from job packages to relevant personal details. But does it feel like you’ve been hearing more from your temps of late? If so, they may have had questions for you, like the one above, about upcoming changes in legislation concerning the calculation of temporary workers’ holiday pay and rolled-up holiday pay.

You’ll know that this has caused quite a stir all-round and involved a consultation process by the Government to discuss the issues with recruitment agencies. Now, with the rule shift going live in April, it’s vital that recruiters get their approach to the change in the legal landscape right. Having appropriate processes and the right recruitment payroll software in place to manage the complexities will be key, but first let’s review what’s going on and why.

The background: Harpur Trust vs. Brazel

The new laws, put forward in November, stem from a legal battle involving a music teacher, who was unhappy about how her holiday pay was being calculated. A Supreme Court ruling in the case set a precedent on how to apply pay calculations for those who are part-time or temporary workers, although its decision doesn’t apply to irregular workers, i.e. workers for whom the number of paid hours that they will work is wholly, or mostly, variable.

As a result, the Government sought talks with recruitment agencies last year, before it announced its proposed amendments to the law. This page on the Government’s website provides expansive guidance on the reforms, including a number of examples of how the changes will impact the entitlements of different types of temporary workers. For the purposes of this article, however, we’ll focus on summarising the thrust of the changes in terms of three key effects.

Holiday pay, agency workers and three factors to be aware of

1. Rolled-up pay is now legal. Rolled-up pay has been frowned upon in certain quarters, given some workers’ tendency to avoid taking holidays. The Gangmasters and Labour Abuse Authority’s (GLAA) stance against this means that some of your clients may require you to sign up to GLAA requirements. And you can expect the GLAA and ACAS to push back against workers not taking their time off. Note too that if a worker is on long-term sick or statutory pay, they’ll continue to accrue usual rolled-up holiday pay based on what they’re usually paid.
2. Agencies now accrue money on behalf of temps. For larger agencies, holding such money can lead to the management of big sums. And the rules have got more complex in this area now, with holiday pay now split into two pots – normal holidays where the accrual of 4 weeks applies, plus bank holidays where the accrual of 1.6 weeks applies. The new law also means that normal pay should include regular bonuses, overtime etc., with 1.6 weeks’ bank holiday days classed as standard, and only paying out based on the worker’s basic pay. Agencies do have discretion as to which pot they choose to pay out of (e.g. from the bank holiday pot, before reverting to the others). But many recruiters have probably found themselves asking ‘how is holiday pay calculated for agency workers?’ of late – and it’s certainly a complicated picture that you’re now being asked to interpret.
3. Employers’ statutory leave years matter. For those companies whose leave year runs with the standard calendar, from January to December, the new law took effect on January 25^th, but it doesn’t apply for an individual until their next holiday renewal date on or after April 2024. Also, anyone with a holiday renewal date falling between 1^stJanuary and 31^st March won’t have to use this law until 2025.

Stay on the right track with Access FastTrack360

The upshot is a need to ensure you have some form of system in place to calculate everything accurately, in order to be compliant with the changing law. Thankfully, Access Recruitment hasn’t been on holiday while all this has been going on. Quite the opposite, in fact, as we’ve been busy reviewing the changes to the legislation to assess the impact to Access FastTrack360, our powerful cloud-based payroll and billing software that determines temporary worker holiday pay and rolled-up holiday pay. The benefit of using a cloud-based system like FastTrack360 is that you can rely on being on the latest version of the software, helping you to stay compliant with changing legislation.

So, if you’re fielding a lot of questions about temporary workers’ holiday pay and rolled-up holiday pay, or are at all worried about what it means for you and your agency, don’t delay. Get in touch for a demo.