From 1 January 2024, the Retained EU (Revocation and Reform) Act 2023 takes effect which will remove general EU-derived laws and principles, creating a risk that the case law covering certain critical workers’ rights would fall away, impacting on areas such as holiday-related rights. In response to this, the Department of Business and Trade launched a consultation in May 2023 to identify the areas of EU-derived employment law which it wished to retain and reform. The Government’s consultation was published on 8 November 2023, outlining proposed amendments to holiday pay, the WTR 1998 and TUPE.
Regulations were drafted and laid before parliament (The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 – “the Draft Regulations”) and are intended to come into force as early as 1 January 2024.
Framework
Holiday pay
‘Rolled up’ holiday pay
Rolled-up holiday pay is the practice of including an amount of holiday pay on top of a worker’s normal hourly rate instead of paying holiday pay when a worker takes annual leave. This practice has been unlawful since 2006 when the European Court of Justice held that the practice was incompatible with the Working Time Directive. The Draft Regulations will allow rolled up holiday pay for part-year and irregular hours workers. The method for calculating the rolled-up amount will be 12.07% of the pay for the hours worked in a pay period. Calculations will be based on a worker’s total earnings, and so includes all types of payments usually included when calculating a week’s pay such as regular overtime and commission payments.
The Draft Regulations do not go so far as to allow for rolled up holiday pay for all workers and so the practice is still unlawful for those that work regular hours.
Holiday entitlement for part-year and irregular hours workers
Following the Supreme Court’s ruling in Harpur Trust v Brazel [2019] EWCA Civ 1402 where it was held that part-year workers are entitled to 5.6 weeks’ holiday in full, without pro-rating, the Government sought to redress the imbalance caused by this ruling which meant that part-year workers would have proportionally more annual leave than that of full-time employees.
Under the Draft Regulations, instead of an entitlement to 5.6 weeks’ actual holiday, part-year and irregular hours workers will accrue leave on the last day of each pay period at the rate of 12.07% of the number of hours worked during that pay period. Their maximum statutory accrual is capped at 28 days, although employers can offer more. The move to a 12.07% accrual method means that both holiday entitlement and holiday pay will more closely reflect the hours that these workers actually work in their leave year.
Carry-over of holiday entitlement
In March 2020, the government introduced regulations to allow for the carry over of annual leave as part of its emergency response to the Covid-19 pandemic. The Draft Regulations repeal the COVID-19 carry-over rules, meaning that any holiday entitlement carried over under those rules must be used by 31 March 2024, or be lost. However, the Draft Regulations restate the right which currently arises from EU case law to carry over holiday at the end of a leave year in various different situations including sickness, being on family/ statutory-related leave, the failure to recognise employment status and failing to afford the right to paid annual leave.
Normal remuneration
The Draft Regulations also include a definition of normal pay for the purposes of calculating normal pay under the WTR 1998, which includes regular overtime and commission.
TUPE
Currently on a TUPE transfer, employers must inform and consult with representatives from a trade union or, if there is none, other employee representatives. Employers can only inform and consult directly with employees if they have fewer than 10 employees in their organisation.
The Draft Regulations will amend TUPE so that if there are no existing employee representatives, consultation can take place directly with employees if:
- There employer employs fewer than 50 employees; or
- The transfer involves fewer than 10 employees.
In either case, the employer will be able to consult directly with employees, where no existing employee representatives are in place.
Working time and record-keeping
European case law currently places a duty on employers to comply with increased record-keeping requirements by recording all daily working hours of all workers, including in relation to the right to minimum daily rest breaks, weekly rest periods and the limit on the maximum weekly working time.
To reduce the administrative burden on employers, the Draft Regulations require employers to keep “adequate” records of the hours worked by staff to demonstrate compliance with the limits on working time as provided for under the WTR 1998.
Takeaways
The Draft Regulations are intended to take effect from 1 January 2024.
Many of the changes, will come as welcome news for most employers and will bring some clarity to common issues. A more streamlined process for the calculation of holiday pay for part-year and irregular hours workers should be seen as positive for employers, as too will the proposal to extend the circumstances under TUPE in which businesses can inform and consult directly with their employees. However, there is still uncertainty over the calculation of “normal remuneration” and whether payments such as annual bonuses should be included in the calculation.
The Government anticipates that record-keeping reforms will result in an annual saving to business of £1.2 billion a year, holiday pay reforms will produce an annual saving to business of £74.7 million a year, and the amendments to TUPE will provide a “small admin saving” for businesses. It remains to be seen if this will happen in practice.
Employers should take steps now to :-
- review and update their policies and procedures relating to annual leave and pay if they have part year or irregular hours workers;
- review holiday pay calculations generally and ensure that they comply with the requirement to pay “normal remuneration”;
- review and update policies on holiday carry over; and
- review and update their practices on record keeping for working time.