Fri 10 Nov 2023

Changes to holiday pay, TUPE and working time confirmed

Significant changes to UK employment law coming into force.  

Following two consultations earlier this year, the UK Government has published their response and draft regulations - The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 ("the draft Regulations") - which are intended to implement the changes.

The consultation on post Brexit changes to retained EU law focussed on three areas:-

  • making the consultation requirements under TUPE less onerous for small businesses
  • simplification of record keeping requirements under the Working Time Regulations ("WTR")
  • simplifying annual leave and holiday pay calculations under the WTR

TUPE consultation

The UK Government response to the consultation confirms that the proposed changes to TUPE consultation will go ahead.  What this means in practice is:-

  • When there are no existing employee representatives in place, small businesses (those with fewer than 50 employees) will be permitted to consult directly with their employees when a TUPE transfer takes place.  They will no longer have to arrange elections for new employee representatives; and
  • When there is no existing employee representative in place, businesses of any size will be able to consult directly with employees where a transfer of fewer than 10 employees is proposed.

WTR record keeping requirements

There had been concern that there was a requirement for employers to record the duration of time worked every day by every worker, rather than simply ensuring adequate records were kept of working patterns in a workplace.  The UK Government response to the consultation, which sought to address this concern, has clarified that the obligation will be to keep adequate records to show that the employer has complied with the working time limits specified in the WTR.  The draft Regulations confirm that the records can be created, maintained and kept in such a manner and format as the employer reasonably thinks fit and specifically sets out that an employer need not record each worker's daily working hours if it can demonstrate compliance without doing so.

Annual leave pay and entitlement

The UK Government response to the consultation confirms it does not intend to proceed with the proposal to create a single annual leave entitlement of 28 days (5.6 weeks).  While this may have seemed a more straightforward way to deal with leave entitlement, the majority of respondents to the consultation disagreed.  Instead, two distinct "pots" of annual leave will remain along with, potentially, two differing rates of pay for each pot - the EU based 4 weeks being paid at the worker's normal rate of pay and the additional 1.6 week entitlement being paid at a worker's basic rate of pay (this being a minimum, it being open to employers to pay both periods of leave at the normal rate of pay if they wish to do so). 

Although the draft Regulations do not define what "normal pay" is for the purposes of calculating holiday pay for the 4 week EU based entitlement, it does specify that it must include:-

  • Payments, including commission payments, which are intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract
  • Payments for professional or personal status relating to length of service, seniority or professional qualifications
  • Other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date

Rolled-up holiday pay is to be re-introduced although only for irregular hour and part-year workers (which would include some agency workers) and it will not be mandatory.  The consultation outcome suggested there would be little benefit of rolled-up holiday pay for full time or full year workers but that it would significantly reduce the administrative burden to businesses of calculating holiday pay for irregular hour and part-year workers. 

Rolled-up holiday pay refers to a practice whereby employers pay an additional sum in respect of holiday pay each month, whether or not any holiday is taken during that period.  Consequently, when a worker takes their holiday, they will not receive any pay. 

In order to be lawful, the rolled-up holiday pay that may be paid to irregular hours or part-year workers must be calculated at 12.07% of all pay for work done, it must be paid at the same time as the pay for work done, and it must be itemised separately on the payslip.  The draft Regulations allow for rolled up holiday for holiday years from 1 April 2024.

The Harpur Trust v Brazel issue

The second consultation responded to by the UK Government related to the Supreme Court case of Harpur v Brazel.  That case resulted in the popular practice of calculating holiday entitlement for part year workers by applying a multiplier of 12.07% to the workers earnings being found to be unlawful.  The 12.07% is the statutory minimum holiday entitlement (5.6 weeks) expressed as a percentage of the number of working weeks in a year (52 - 5.6 - i.e. 46.4 weeks). So, 5.6/46.4 = 12.07%.

However, the UK Government response to this consultation has confirmed that a new accrual method will be introduced based on this previously widely used method of calculation, negating the Supreme Court's judgment. Irregular hours and part-year workers holiday entitlement will be calculated on the basis of an accrual rate of 12.07% of hours worked in each pay period.  This means holiday will accrue as the year progresses and will stay in proportion to the hours worked.  There are special rules for accrual during sickness and family leave.

Carrying forward leave

The UK Government response also confirmed that various rights derived from retained EU case law would be restated to ensure workers' entitlement in relation to carry-over of annual leave would be protected.  The draft Regulations provide that workers will be able to carry forward any untaken part of the 4 week EU based holiday where employers do not:-

  • recognise a worker’s right to annual leave under this regulation or to payment for that leave in accordance with regulation 16;
  • give the worker a reasonable opportunity to take the leave to which the worker is entitled under this regulation or encourage them to do so; or
  • inform the worker that any leave not taken by the end of the leave year, which cannot be carried forward, will be lost.

The draft Regulations also provide for workers to carry forward their EU based 4 week entitlement if they have been unable to take it because of sick leave, however this must be done within 18 months of the end of the holiday year in which the entitlement arose.  In addition, workers will be able to carry forward their whole 5.6 week entitlement into the next holiday year if they have not been able to take it due to family leave.

The draft Regulations are due to come into force on 1 January 2024, giving employers less than two months to prepare.  Employers should use this time to ensure that their current systems relating to holiday entitlement, accrual and pay align with the new requirements. 

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