Rolled-up holiday pay introduced for umbrella company contractors

What is rolled-up holiday pay?

Rolled-up holiday pay is when a worker is paid an additional amount on top of their normal hourly rate with this surplus representing their holiday pay instead of them receiving it when they take annual leave.

Why is rolled-up holiday pay currently illegal?

Rolled-up holiday pay is currently against the law in the UK due to a ruling by the European Court of Justice 2006.

It was thought that many workers might not be incentivised to take annual leave because they could earn more holiday pay by staying at work.

Now that there is the option to break away from EU laws, the government’s plan is to simplify elements of holiday pay.

What do these changes mean?

Initially, the consultation was looking at making rolled-up holiday pay available for all types of workers, however, it has been decided that these changes will only apply to those who work irregular hours and part-year workers.

They are set to come into force on the 1st of January 2024.

The Association of Professional Staffing Companies (APSCo), which called for these changes in its consultation response, has said that the confirmed crucial steps have been welcomed by recruiters and umbrella companies.

These steps include:

• Retaining two distinct ‘pots’ of annual leave and existing rate of holiday pay (4 weeks at normal rate of pay and 1.6 weeks at basic rate of pay).
• The introduction of rolled-up holiday pay for irregular-hours workers and part-year workers, which would include some agency workers.
• Plans to legislate an accrual method to calculate entitlement at 12.07% of hours worked in a pay period for irregular-hours workers and part-year workers in the first year of employment and beyond.
• The simplification of TUPE requirements and reduction of administrative burdens for small businesses.

Commenting on this, Tania Bowers, Global Public Policy Director at APSCo, said, “This is a significant win for APSCo and its members. We have highlighted for years that rolled-up holiday pay is necessary and will protect agency and umbrella workers. We’re pleased to see that our recommendations have been seriously considered and adopted in this consultation response, including the rate of holiday pay and the simplification of TUPE requirements.

“The plans outlined are, in our view, the only fair way to pay irregular workers and ensure they are no longer at risk of losing accrued holiday pay due to the way they are employed. However, it is now important for recruiters and umbrella companies to assert to workers and end clients that individuals must take the holiday or pay they are owed and the Working Time Regulations.”

We hope this page has answered some of your questions, but if you have any further queries, our team of experts are available to help, so give us a call on 01442 795 100 or email sophie.lewis@dolanaccountancy.com.