The UK Government introduced significant changes to holiday pay and entitlement regulations in January 2024, with full implementation for January-to-December holiday years starting on January 1, 2025.
These updates aim to bring greater clarity and transparency to holiday pay calculations for businesses employing casual, irregular, or part-year workers.
This article outlines the key changes and what SMEs need to do to ensure compliance in 2025.
Key Changes to Holiday Pay Regulations in 2025
1. Reintroduction of the 12.07% Calculation Method
Under the new regulations, employers are able to use the 12.07% method to calculate holiday pay for workers with irregular hours or part-year contracts.
This formula is designed to simplify the often-complex process of determining entitlements for employees without fixed or regular schedules and is based on the 5.6 weeks of holiday all workers are entitled to.
2. Rolled-Up Holiday Pay Returns
The reinstatement of rolled-up holiday pay from April 2024 offers employers the option to include holiday pay within regular wage payments for casual or irregular workers.
Employers opting to use this method must clearly document rolled-up pay within their contracts and payslips.
3. Updates to Carry-Over Rules for Unused Holidays
Changes to how unused statutory holidays can be carried forward into the next leave year were introduced in April 2024.
These allow up to 20 days for regular hours workers or 28 days for irregular hours and part-year workers to be carried forward in certain circumstances.
4. Updated Definition of a Week’s Pay
The calculation of a week’s pay, used to determine holiday pay for employees with variable earnings, has also been refined.
This ensures that employees are compensated fairly for the time they take off, based on their typical earnings, including commission and overtime.
Practical Next Steps for SMEs to Ensure Compliance:
Employers now need to make sure that their policies all align with the new framework and crucially, that all staff have been made aware of any changes that may affect them.
1. Audit Current Policies
Review your current holiday pay and entitlement processes.
Can your current payroll system accommodate the 12.07% calculation method and other changes?
2. Communicate with Employees
Clear communication is essential.
Do your employees understand how the changes will affect their holiday entitlement and pay, especially if rolled-up holiday pay is being introduced?
3. Seek Expert Guidance
Are you confident in navigating these regulatory changes?
It can be a complex and daunting task, however you don’t need to battle through on your own.
ProspHR Solutions will support and guide you through the process and ensure that your business remains compliant while making the transition as smooth as possible.
Here at ProspHR Solutions, we have the know-how and expertise to help you navigate these updates and ensure that your business continues to thrive.
Get in touch with us today.
Sources ACAS, GOV.UK