The Government has announced that it will be introducing The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 which are planned to come into force from 1 January 2024. These regulations aim to reform and simplify the calculation of holiday pay for part-year workers and those with irregular hours, along with making other changes and clarifications to former EU employment laws.

The simplification of holiday pay calculations will be a welcomed change in legislation for many employers after the Supreme Court decision in Harpur Trust v Brazel in which the Court confirmed that using the 12.07% percentage method (the “Percentage Method”) for calculating holiday pay for part-year workers was contrary to the Working Time Regulations 1998 (“WTR”).

The Supreme Court confirmed that the WTR required employers to pay part-year workers, who are engaged throughout the annual leave year, 5.6 weeks’ paid leave, calculating a week’s pay by using the average weekly pay in the reference period of 52 weeks ending with the start of their leave period. Significantly, that this reference period (which at the time of Mrs Brazel’s claim was 12 weeks but has since been amended to 52 weeks) should ignore any weeks in which the worker did not receive any pay. This method is referred to as the “Calendar Week Method”.

The difficulty with the Calendar Week Method is that those who work a limited number of weeks in the year can be entitled to holiday pay which is disproportionate to the amount of basic pay that they receive. For example, a festive grotto worker who only works for one week of the year, but who is contracted throughout the year, would be entitled to 5.6 weeks’ paid leave calculated at the rate of pay for the one week that he/she worked.

Whilst the decision in this case did not change the pre-existing legislative position, it highlighted some of the difficulties with the WTR: the Calendar Week Method is administratively burdensome for employers and can easily lead to disproportionate entitlements to holiday pay for atypical workers.

In January 2023, the Government issued a consultation on the calculation of annual leave entitlement for part year and irregular hours workers. On 8 November, it published its response to that consultation alongside responses to other consultations it had issued in relation to record keeping under the WTR and the consultation requirements under the Transfer of Undertakings (Protection of Employment) 2006 (“TUPE”).

The Government has confirmed that it will introduce “rolled up holiday pay” for those who work part year or who have irregular hours. This will enable employers to provide workers with an additional amount on top of their regular pay to cover their holiday entitlements, instead of providing paid leave at the time that the leave is taken. This will mean that employers will be able to lawfully use the Percentage Method to provide atypical workers with their paid holiday entitlements.

The Government has now subsequently published The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 which firms this change. In addition, the draft statutory instrument includes provisions to:

  • reform the record keeping obligations under the WTR to remove what the Government considered to be disproportionate additional requirements set out in the ECJ judgment in CCOO v Deutsche Bank, which had held that records of working hours and rest period records needed to be kept for each worker using an objective, reliable and accessible system;
  • reform the TUPE consultation obligations so that that transferring organisation can consult directly with workers, if there are no existing worker representatives in place, for:
    • all small businesses (with fewer than 50 employees); and
    • small transactions (for any size business) where there are fewer than 10 employees transferring,
  • clarify what is included in “normal remuneration” for the purposes of the WTR to include particular payments (such as regular overtime and commission payments); and
  • restate various pieces of retained EU case law relating to the carry-over of leave when leave cannot be taken due to sickness, or family related leave or where the employer has failed to inform them that leave would be lost if not taken.

The Government has additionally confirmed that it will not take forward the proposal to introduce a single annual leave entitlement incorporating the four weeks’ basic annual leave originally mandated by EU law and the 1.6 weeks’ additional leave prescribed by the WTR.

If you would like advice on how these changes affect your organisation, please get in touch with the Employment, Pensions & Immigration team.

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