Legislation Impacting Holiday Pay & Other Miscellaneous Provisions

The Government, last week, published draft legislation to implement changes to holiday rights under the Working Time Regulations (“WTR”). 

The draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (“Regulations”) still need to complete the final stage of the legislative process but significant changes are not envisaged. Providing there are no hiccups, the Regulations should take effect on 1st January 2024.

Who is affected by the Regulations?

The Regulations make changes to holiday rights for those workers with irregular hours or who only work part of the year.

Who is an “Irregular Hours Worker”?

Where, in the holiday year, the number of paid hours worked in each pay period during the term of their contract is wholly or mostly variable, is an Irregular Hours Worker e.g. zero hours workers, some variable hours workers, or  certain agency workers.

Who is a “Part Year Worker”?

Where, in the holiday year, the worker is only required to work part of the year under the terms of the contract and there are periods within that year (during the term of their contract) of at least a week which they are not required to work and are not paid for, will be classed as a Part Year Worker e.g. Term Time only workers and some seasonal workers.

Atypical Workers

Whilst the Regulations refer to ‘Irregular Hours Workers’ and ‘Part Year Workers’ for the purpose of this article, we shall refer to both group of workers as “atypical workers”.

Holiday Changes for Atypical Workers

Providing there are no hiccups with the legislation process, the following changes will apply to holiday years which start on or after 1st April 2024:

The Regulations permit employers to:

  1. Calculate holiday entitlement for atypical workers as 12.07% of the hours worked in a pay period;
  2. Elect to pay rolled up holiday pay for atypical workers;
  3. Adopt a new method for calculating holiday entitlement for atypical workers who are on long term sick leave, or family leave, inclusive of a 52 week reference period.

12.07% Calculation

The Supreme Court in Harper Trust v Brazel ruled the use of 12.07% calculation to be unlawful and not compatible with the WTR.  Previously the 12.07% was not in legislation, but was ACAS guidance, which was widely adopted. The Supreme Court’s decision resulted in some anomalous holiday calculations, including that part year workers could get more holiday entitlement than part time workers who worked the same number of hours on an annual basis. Consequently, the Government’s response to remedy this issue is to amend the legislation, and to permit employers, to adopt the 12.07% for atypical workers. 

This does not affect how holiday entitlement should be calculated for regular hours workers, who will continue to accrue annual leave as they do now.  

Rolled Up Holiday Pay

Employers will be allowed, under the new Regulations, to pay a “holiday pay enhancement” on top of the worker’s wages. Whilst Rolled Up Holiday Pay was previously unlawful, previous case law held that if the ‘rolled up’ element of the holiday pay was itemised separately on a pay slip, and the contract reflected the employee’s hourly rate (excluding the rolled-up holiday pay element), then the rolled-up holiday pay would go towards offsetting the employer’s liability to pay holiday pay.

Rolled up holiday pay enables workers to receive an additional amount or enhancement to their regular pay instead of being paid when annual leave is taken.  Workers still need to take the time off.  

The Government dropped its original proposal to allow rolled up holiday pay for all; and is limited to atypical workers. 

Calculating Holiday Pay for Atypical Workers on Sick Leave / Family Leave

To ensure atypical workers know how much leave has been accrued when they are on maternity / family-related leave or sick leave, the Government will legislate to introduce a 52-week reference period enabling employers to look back and calculate an average of hours worked across that period. Employers will need to include weeks not worked and not on statutory leave, so it is proportionate to the time actually worked.

The Government scrapped plans to introduce an overarching 52-week holiday entitlement reference period for all employees and workers.

Miscellaneous Changes:

Other changes to be implemented by the Regulations include:

  • The Legislation introduced during the COVID pandemic which allowed roll over of holiday for two holiday years in specified circumstances, will be revoked.
  • The WTR require employers to maintain adequate records to demonstrate compliance with the maximum weekly working time; length of night work; and Health assessments and transfers of night workers to day work. However, the Court of Justice of the European Union recently held that employers would need to comply with increased record keeping requirements by recording all daily working hours of all workers. The new Regulations provide that businesses do not have to follow that case and do not have to keep a record of all daily working hours of all their workers for the purposes of the WTR providing the employer is able to demonstrate compliance without doing so. Employers are still obliged to adhere to current requirements to keep records which are adequate to show whether the employer has complied with the WTR.
  • A minor amendment is made to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”).  Currently, TUPE provides that a micro-business can comply with the relevant information and consultation requirements by informing and consulting directly with the affected employees in circumstances where there are no existing appropriate representatives. The amendment provides that the circumstances in which employers can inform and consult directly with employees will extend to businesses with fewer than 50 employees; and also where there are fewer than 10 employees transferring (regardless of the size of the employer). This applies to business transfer/service provision changes that take place on or after 1st July 2024.

Restating the Law

Additionally, the Regulations restate some existing working time requirements that derive from EU Case Law. This is to avoid legal uncertainty when the EU Retained Law (Revocation and Reform) Act 2023 comes into force on 1st January. 

These restated provisions include:

  • Defining “normal pay” for the purposes of calculating holiday pay for the EU derived four-week entitlement that includes:
  • 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.

The above is set out in EU Case Law, but which the Government are now going to write into UK Legislation.

  • Specifying the circumstances in which holiday entitlement can be carried forward into subsequent holiday year as follows: 
  • All statutory annual leave to the following year when a worker is unable to take their leave due to being on family related leave;
  • Up to 4 weeks leave where a worker is unable to take their leave due to sickness. The worker is entitled to carry forward such untaken leave into the following leave year provided it is taken by the end of the period of 18 months from the end of the leave year in which the entitlement originally arose; and
  • Up to 4 weeks leave (which is untaken in that leave year or has been taken but not paid in accordance with the WTR) where the worker has not been given opportunity to take the leave or the employer has failed to inform them that any leave not taken and which cannot be carried over will be lost.

Some of the current Law in relation to carry-over of annual leave derives from EU case law.  After the Brexit changes on 31st December, the Government will enshrine it in Legislation to make sure this remains part of UK Law after.