The government is planning to replace the Holidays Act 2003 with a new law designed to make things simpler and fairer for everyone. The current Act has long been criticised for being confusing and difficult to apply, especially for small businesses that have employees working variable hours or on different pay cycles. The new law will make it easier to calculate leave and ensure that employees get what they’re entitled to, without creating unnecessary admin headaches for employers.
One of the biggest changes will be the way annual and sick leave are calculated. Instead of employees becoming entitled to four weeks of annual leave after 12 months of work, leave will accrue based on the number of hours worked. This means employees will build up leave from day one, making the process clearer and more consistent across different types of roles. For casual or irregular workers, the current 8% holiday pay loading is likely to increase to around 12.5% under a new “leave compensation” model that better reflects their working patterns.
Sick leave entitlements are also set to change. Under the new system, sick leave will likely be calculated in hours rather than days, and for part-time staff, it may be adjusted so that the entitlement matches the actual hours they work. This will help ensure fairness while preventing confusion about how much leave someone is really owed.
The government has also said that the new law will require simpler, clearer payslips that show both pay and leave balances in an easy to understand format. There will be a transition period, expected to be around two years, after the new law is passed, so businesses will have time to update their systems and processes.
For small business owners, it’s a good idea to start preparing now. Review your employment agreements to make sure the way you describe leave is flexible enough to adapt to the new law. Talk to your payroll provider to check whether their system can handle hours based leave accrual, and think about how these changes might affect your costs or workflows, especially if you employ casual or part-time staff. Even though the new legislation hasn’t taken effect yet, it’s important to keep complying with the current Holidays Act until it does.
These changes are ultimately designed to make life easier for both employers and employees. For small businesses, it’s a chance to tidy up leave practices, reduce compliance risk, and create clearer systems that staff can understand. By getting ahead of the changes now, you’ll be well prepared when the new law takes effect and your business will be in a strong position to adapt smoothly when it does.
