Government to Introduce Significant Changes to Holiday Entitlement and Pay
On 8th November 2023, the government published its much-anticipated response to a consultation on reforming holiday rights. The government has also published a draft statutory instrument containing the amendments, which are likely to come into force in January 2024.
The government is also looking to reduce the reporting requirements and simplify annual leave and holiday pay calculations under the Working Time Regulations 1998 (WTR). Furthermore, it will make slight amendments to the rules that apply when a business transfers to a new owner.
The Background
These proposals follow a consultation launched in January 2023 on calculating annual leave entitlement for part-year and irregular-hour workers to address the issues that arose following the Supreme Court’s judgment in Harpur Trust v Brazel. As a result of the Supreme Court’s decision in that case, part-year workers are entitled to a greater annual level entitlement than part-time workers who work the same number of hours across the year.
A consultation was also launched in May this year on other areas for reform, including record keeping under the WTR, and consultation requirements under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
The government has now confirmed what employment reforms it intends to take forward.
Holiday Pay for Irregular Hours and Part-Year Workers
The most significant reforms concern entitlement to holiday pay entitlement which effectively reverses the Supreme Court decision in Harpur Trust v Brazel.
The new legislation will instead calculate holiday pay entitlement for irregular hours and part-year workers on the last day of each pay period at the rate of 12.07% of the hours worked during that pay period.
12.07% is calculated by taking the statutory minimum holiday entitlement in a year (5.6 weeks) expressed as a percentage of the number of working weeks in a year (46.4 weeks). Using 12.07% to calculate holiday entitlement or pay for irregular hours or part-year workers keeps entitlement in line with that of a regular full-time worker.
These rules will apply to leave years starting on or after 1st April 2024 and will not affect how holiday entitlement should be calculated for regular workers.
The reforms aim to address concerns from businesses by helping to simplify the calculation of holiday entitlement for employers and make entitlement clearer for all irregular and part-year workers and agency workers.
Rolled-Up Holiday Pay
Rolled-up holiday pay is a practice whereby employers pay workers an additional sum representing their holiday pay entitlement on top of their normal hourly rate of pay while they are actually working, instead of paying the holiday pay at the time when their leave is taken.
It is currently unlawful following a ruling by the European Court of Justice in 2006, which expressed concerns that workers may not be incentivised to take leave as they were able to earn more holiday pay by staying at work.
The government originally proposed making rolled-up holiday pay available to all workers but has now decided to permit rolled-up holiday pay for workers with irregular hours and part-year workers only.
Working Time
In 2019, the ECJ held that employers must keep a record of all hours worked by their workers every day to ensure compliance with the rules on maximum weekly working time and rest breaks.
However, the government has now clarified that the Working Time Regulations 1998 only require that ‘adequate’ records should be kept in order to prove compliance with specific provisions. As a result, UK businesses do not have to keep a daily record of working hours for each worker.
TUPE Reform
The government has also confirmed that it will press ahead with changes to TUPE, which protects employees and their benefits when their organisation transfers from one employer to another. The reforms will allow organisations with fewer than 50 employees and any size business transferring fewer than 10 employees to consult directly with workers if there are no existing worker representatives in place.
If you would like support or advice on getting to grips with the new regime on part-time workers and irregular hours holiday pay entitlement, or any of the other employment law reforms ahead of 1st January 2024, please contact our expert employment team via email.
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