Holiday pay: new rules on carry-over from 1 January 2024

From 1 January 2024, new statutory rules on carry-over of holiday apply, regardless of when the leave year starts. Regulations which amend the Working Time Regulations 1998 (WTR 1998) provide that leave years starting before and after 1 April 2024 are covered. Employers should review any or all of the following to check that they are compliant: contractual clauses on holiday, holidays policy, payroll and record-keeping, communications to staff in respect of holiday. While much of what is being codified in statute will be familiar from EU law, many employees will not have been aware of their rights until now. 

Unable to take annual leave due to maternity/family leave or sick leave 

A worker is entitled to carry over 5.6 weeks' annual leave into the following leave year where they have been unable to take all or part of their annual leave: 

• As a result of taking statutory leave (essentially maternity and other family-related leave) in any leave year. 

A worker is entitled to carry over only 4 weeks of annual leave (regulation 13 leave):  

• As a result of taking sick leave in any leave year. 

In cases where leave is carried over as a result of sick leave, annual leave must be taken by end of the period of 18 months from the end of the leave year in which the entitlement originally arose.   

Employer's failures may lead to indefinite carry-over

Regulation 13 leave (4 weeks' leave) may also be carried over, into the next and any subsequent leave year, as a result of an employer's failure with regard to annual leave, in particular where an employer fails to:

• Recognise a worker's right to annual leave (this covers cases where an employer misclassifies status or where they refuse to recognise a worker's right).
• Give the worker reasonable opportunity to take the leave or encourage them to do so.
• Inform the worker that any leave not taken by the end of the leave year which cannot be carried forward will be lost.

A significant sum for unpaid holiday may crystallize on termination if an employer fails several years running to recognise a worker's right to annual leave, or indeed in the other two respects. By way of example, the Pimlico Plumbers case was one in which around £80,000 arrears had built up in unpaid holiday as a result of misclassification.

Employers should make clear the 'use it or lose it' rule in policies and also issue regular reminders to employees that their holiday entitlement will be lost if they do not use it before the end of the holiday year. It remains to be seen what constitutes 'encouraging' employees to take leave under the new statutory definition, in particular how far an employer is expected to go in this regard. 

If you would like advice on this, or any other aspect of the new rules on holiday entitlement, please contact a member of the team.