• Nicky

Could Your Payroll Be Getting Rolled-Up Holiday Pay Wrong? 

 

When the Government reintroduced rolled-up holiday pay for irregular hours and part-year workers, many employers breathed a sigh of relief. 

 

Payroll became simpler. Holiday pay could be added to each payslip rather than calculated every time leave was taken. 

 

But there is one important point that many employers appear to have missed. 

 

If you use rolled-up holiday pay, your workers must not lose that holiday pay simply because they're off sick. 

 

This catches a surprising number of employers out. 

 

A quick recap 

Rolled-up holiday pay can only be used for irregular hours workers and part-year workers, provided the relevant legal requirements are met. 

 

Typically, holiday pay is paid alongside normal wages, shown separately on the payslip, rather than when annual leave is actually taken. Importantly, workers must still be encouraged to take their statutory annual leave. 

 

The point many employers overlook 

Imagine a casual worker who normally receives rolled-up holiday pay with every weekly payslip. 

 

If that worker is absent due to sickness for several weeks, it's easy to assume that because they are not working, they are not entitled to receive any rolled-up holiday pay during that period. 

 

That assumption would be wrong. 

 

ACAS is clear that irregular hours workers and part-year workers must not lose rolled-up holiday pay when they are off sick or on statutory family leave. 

 

Instead, employers should continue to pay an amount representing rolled-up holiday pay during the sickness absence. 

 

How is it calculated? 

The payment is not based on what the worker would have earned had they worked that week. 

 

Instead, employers should calculate the average amount of rolled-up holiday pay the worker received during the relevant reference period and continue paying that average during the sickness absence. 

The same principle applies during statutory family leave, including maternity, adoption, paternity and several other statutory leave types. 

 

Why this matters 

Many payroll systems won't automatically deal with this correctly. 

 

If the payroll simply stops paying rolled-up holiday pay whenever a worker stops working, employers may inadvertently underpay workers during sickness absence. 

 

That creates unnecessary risk, particularly where large numbers of casual, seasonal or zero-hours workers are employed. 

 

What employers should do now 

If your organisation uses rolled-up holiday pay, now is a good time to check: 

 

  • Which workers genuinely qualify for rolled-up holiday pay; 

  • Whether payroll continues paying the correct rolled-up holiday pay during sickness absence and statutory leave; 

  • Whether contracts accurately reflect your approach; and 

  • Whether managers and payroll staff understand the rules. 

 

A small payroll setting could make the difference between compliance and a series of unlawful deduction from wages claims. 

 

As is often the case in employment law, it's the small details that can become expensive if they're overlooked. 

 

Need advice? 

If your business employs irregular hours, seasonal or part-year workers and you're unsure whether your payroll arrangements comply with the latest holiday pay rules, we'd be happy to help. Sometimes a simple review of your payroll processes and employment documentation can prevent costly mistakes further down the line.