Worthingtons Solicitors

New Year, New Holiday Pay Regulations

As we embark on another new year, what better time than January for an employer to review their Annual Leave Policy?

As of 01 January 2024, we have officially entered the post-Brexit era for Employment Law purposes; and the UK government has introduced new holiday regulations; namely the Working Time (Amendment) Regulations (Northern Ireland) 2023, as a consequence. But what do these regulations mean?

As it stands, NI workers have two separate holiday entitlements: four weeks leave pursuant to the EU Working Time Directive (WTD) and an additional 1.6 weeks leave pursuant to national law. As has been widely reported in recent years arising from case law developments, the WTD leave of 4 weeks must be paid based on the employee’s ‘normal pay’ i.e. taking into consideration the payments in respect of overtime worked with a sufficient degree of regularity and commission generated regularly paid to the worker when they work.

The remaining 1.6 weeks under national law is paid at basic pay rate. Whilst both entitlements, and correlating rates of pay, remain, notwithstanding the Supreme Court Ruling in the case of Agnew & Ors v PSNI & Ors, which states that “for pragmatic reasons, the Court of Appeal encourage the parties to agree a method for calculating pay based on a 12 month reference period” the new regulations provide that when an employer is calculating holiday pay, they must do so by reference to  the 12 week period preceding the calculation date. This will undoubtedly give rise to confusion. But, ultimately, the 12 month reference period was, in essence, an endorsement of the Court of Appeal’s recommendation; and caveated at Supreme Court with “the appropriate reference period in any case is a question of fact.”

The effect of the new regulations is that, going forward, employers are now legally required to avail of a 12-week reference period. However, the regulations are not retrospective – meaning how holiday pay is calculated in respect of any live dispute for retrospective payments remains open to agreement. Nevertheless, employers may now wish to review the reference period within their policy given this development.

The regulations have also provided clarification regarding carrying forward annual leave and when it is permitted. Employers must give employees the opportunity to take leave and warn that should they have outstanding holiday entitlement at the end of the annual leave year, they run the risk of losing it (the ‘use it or lose it’ principle).

Employees will be able to carry over accrued leave which they were unable to take due to family-related statutory leave. The overarching rule is that the entire 5.6 weeks’ entitlement may be carried forward if the employee was prevented from taking same due to family leave (eg. maternity). In contrast, if absent as a consequence of sickness, only the 4 weeks’ leave derived from WTD can be carried over into the following annual leave year and must be used within 18 months of the end of the annual leave year in which the holiday accrued. There remains the issue of conducting a composite calculation considering that PSNI determined each days leave is a composite of EU leave, national leave, and contractual leave (if/where applicable).

The Department for Business and Trade has issued guidance on the holiday pay and entitlement reforms from 1 January 2024 and whilst applicable to England and Wales only, point 4 and 5.1 are helpful, with a breakdown of the changes applicable to NI.

Toni Fitzgerald-Gunn is Partner in the Employment Team and can be contacted via email at [email protected]. If you wish to speak with Toni, or any member of the employment team, pleased contact the office on 02890434015.

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