Changes to Holiday Pay & Other Employment Law Issues

Laura McHugh
Laura McHugh

Published: November 10th, 2023

7 min read

The Government has published its response to the consultations "retained EU employment law" and "calculating holiday entitlement for part-year and irregular hours workers". Whilst the response covers a number of areas (set out below) the most noteworthy is the proposal to change how holiday pay can be calculated for 'part-year' / irregular hours workers following Harpur Trust v Brazel. This is especially important for those in the education sector who regularly engage term time only workers and have been waiting for clarification on this difficult area for some time.

Areas covered in the response:

  • The use of rolled up holiday pay,
  • The proposal to have a single annual leave entitlement (incorporating the 4 weeks annual leave mandated by EU law and the additional 1.6 Working Time Regulations leave),
  • Calculation of annual leave entitlement for part year workers (following Harpur Trust v Brazel),
  • The carry over of annual leave permitted by The Working Time (Coronavirus) (Amendment) Regulations 2020,
  • The record keeping requirements under the Working Time Regulations, and
  • The consultation requirements under TUPE.

The link to the response to the consultation is here.

What is the outcome of the consultation?

Holiday pay and entitlement

Calculating holiday entitlement for part year and irregular hours workers

The Government consulted on the effect of the Harpur Trust v Brazel judgement. In this case, the Supreme Court held that the 5.6 weeks' annual entitlement under the Working Time Regulations 1998 should not be pro rata for "part year workers" (i.e those who are employed for the whole year but only work some weeks and not others.). This created the unwanted result of some part year workers having more holiday entitlement than part time workers who worked the same number of hours but all year round.

The original suggestion which the Government consulted on was that a 52 week holiday entitlement reference period for part year and irregular workers could be used, which would be based on the proportion of time spent working over the previous 52 week period. However, there was concern raised by those who responded to the consultation that this would cause an additional administrative burden on businesses. There was a theme throughout the responses which suggested that employers found it difficult and complex to calculate holiday entitlement and that a simplified approach would help to make things fair and simple.

The Government have therefore confirmed it will legislate to introduce an accrual method of 12.07% to calculate holiday entitlement of hours worked in a pay period for irregular hour workers and part year workers in the first year of employment and beyond.

Workers with regular hours of work will not be affected by this change. Also worth noting that whilst the 52 week reference period method is not going to be adopted for all employees and workers, exceptions can be made to this for part year / irregular hours workers who have not been able to take leave due to absences such as long term sick leave or family leave.

Introducing "rolled up" holiday pay

The Government received mixed responses to its proposal to introduce rolled up holiday pay. This means that workers would receive an enhancement or an additional amount to their regular pay instead of being paid when they take annual leave. This practice is currently unlawful and there was previously concern that such a practice would disincentivize individuals from taking annual leave. The Government is of the view however that there would be clear benefits to businesses and workers in introducing this, in particular with regard to those who work irregular hours and part-year workers where this would "significantly reduce the administrative burden to businesses of calculating holiday pay".

The Government therefore plans to introduce rolled up holiday for irregular hours workers and part year workers, which will also include some agency workers if their working arrangements mean that they fall within the meanings of both a "worker" and either an "irregular hours worker" or a "part year worker", within the meaning of the new definitions that that will be added to the Working Time Regulations. The Government will legislate to ensure that all employers that choose to use rolled up holiday pay calculate it based on a worker's total earnings in a pay period. Rolled up holiday pay will not be introduced for full time or full year workers.

Creation of a single annual leave entitlement of 5.6 weeks

The Government consulted on the proposal to introduce a single annual leave entitlement incorporating the four weeks' basic annual leave which derives from EU law and the 1.6 weeks' additional Working Time Regulations leave.

The Government have decided that they will not be introducing this single annual leave entitlement due to there not being a single rate of holiday pay being in place. Instead the two "pots" will remain which reflects the two existing rates of pay so that workers will continue to receive 4 weeks at their "normal" rate of pay, and 1.6 weeks at their "basic" rate of pay. The Government do state however, that they do intend to legislate so that it is clear what "normal remuneration" for holiday pay purposes.

Carry over of annual leave

The Government plans to restate various pieces of retained EU case law that they consider necessary to retain workers' overall level of protection and entitlement in relation to carry over of annual leave when a worker is unable to take their leave due to being on maternity / family related leave or sick leave. There are also plans to introduce a method of accrual of annual leave for irregular hours and part year workers when they have had other periods of maternity or family related leave or sick leave., including use of a 52 week reference period as mentioned above.

Carry over of annual leave - The Working Time (Coronavirus) (Amendment) Regulations 2020

The Working Time (Coronavirus) (Amendment) Regulations 2020 were introduced in March 2020 as emergency temporary legislation to prevent workers from losing annual leave entitlement If they were unable to take it due to the effects of coronavirus. The Working Time Regulations were amended to allow workers to carry over 4 weeks of leave into the following two leave years if it was not reasonably practicable for a worker to take this leave in the year to which it was related.

The Government plans to remove the right to carry over leave so that the position reverts to that which was in place immediately before the amendments.

This means from 1 January 2024 workers can no longer accrue Covid-19 carryover leave. If there is still leave to use, workers will still be able to use all leave accrued prior to 1st January 2024 on or before 31st March 2024. There will also be provisions in place for those workers whose employment terminates on or before the 31st March 2024 so that they can claim any pay in lieu for any remaining entitlement that they were unable to use due to the effect of coronavirus.

TUPE

The Government consulted on two proposals for reforming the TUPE regulations:

  1. flexibility for employers to consult directly with employees before a TUPE transfer for small businesses (those with fewer than 50 employees) as long as there are no existing employee representatives in place and;
  2. flexibility to consult directly with employees for businesses of any size who are undertaking a transfer of fewer than 10 employees.

Concerns were raised about these changes adversely affecting the rights of employees involved in transfers and the quality of consultation, however the Government have decided to proceed with their planned reforms to the TUPE consultation requirements. This means that small businesses (with fewer than 50 employees) undertaking a transfer of any size and businesses of any size undertaking a small transfer (of fewer than 10 employees) can consult their employees directly if there are no existing worker representatives in place.

Record keeping requirements under the Working Time Regulations

There had been some uncertainty about the current record keeping requirements of the Working Time Regulations. There had been a judgement on a European case (Federación de Servicios de Comisiones Obreras (CCOO) v Deutsche Bank SAE) that had held that objective, reliable and accessible records needed to be kept with regard to minimum daily rest, weekly rest periods and the limit on the maximum working week. In practice this meant that employers might need to record the duration of time worked each day by each worker.

The Government have confirmed that as an outcome of this consultation, an employer will still need to keep adequate records to demonstrate compliance with the Working Time Regulations but will not need to keep a record of workers' daily hours.

What does this mean for organisations?

The consultation response does not contain any timeline for when these changes will take place. However, the Government has produced a draft statutory instrument (The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, which is due to come into force on the 1st January 2024.

It is therefore important to begin preparations for these changes and Forbes will of course keep you informed of developments.

Has the consultation clarified how much holiday pay should be paid when an individual takes a holiday?

Unfortunately not. The Government have decided that it will not be introducing a single annual leave entitlement with a single rate of pay. The Consultation response however states that "as the Working Time Regulations do not set out what is considered normal remuneration as established by European case law, we need to legislate to define this in order to retain the two rates of pay." Clarification on what "normal remuneration" will include for holiday pay purposes will be very welcome.

If you have any further questions, please contact Laura McHugh at Laura McHugh or Catherine Hare at catherine.hare@forbessolicitors.co.uk

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