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On 12 May 2023, the Government launched a consultation on reforms to the Working Time Regulations 1998 (WTR), holiday pay, and the Transfer of Undertakings (Protection of Employment) Regulations (TUPE).
During an eight week consultation period, over 1,916 responses were received, with the largest number of responses coming from individual employees (36%) and the general public (30%).
On 8 November 2023, the Government published its highly anticipated response to the consultation concerning reforms to retained EU employment law, as well as its response to an earlier consultation regarding the calculation of holiday entitlement for part-year and irregular hours workers (which came about as a result of the Supreme Court’s decision in Harpur Trust v Brazel).
In this article we take a look at the Government’s response, as well as the draft Regulations which aim to implement the proposed changes.
Holiday pay and entitlement reform
Almost all workers are entitled to 5.6 weeks of paid annual leave per year. This is made up of four weeks leave derived from EU law (under Regulation 13 of the WTR), plus an additional 1.6 weeks leave derived from domestic law (under Regulation 13A of the WTR). Leave paid under Regulation 13 is calculated at the rate of a worker’s “normal remuneration” (which may include payments such as overtime and commission), whereas leave under Regulation 13A is paid at a basic rate.
The Government’s first proposal was to create a single annual leave entitlement of 5.6 weeks, combining the EU and domestic entitlements. The aim was to reduce the administrative burden that businesses face by ensuring that all annual leave is paid at one rate.
Following the consultation, the Government has decided not to introduce a single annual leave entitlement with a single rate of pay and instead will maintain the two distinct pots of annual leave. However, the draft Regulations will set out what should be included in “normal remuneration” to assist employers by clarifying which payments should be paid under which pot of annual leave.
The Government’s second proposal was to introduce “rolled-up” holiday pay for all workers.
Following the consultation, the Government has decided that introducing rolled-up holiday pay would provide little benefit for full-time or regular hours workers and it will therefore only introduce the option of rolled-up holiday pay for irregular hours and part-year workers. The practice will be permitted for holiday years from 1 April 2024, with rolled up holiday pay being calculated at 12.07% of all earnings in a pay period. It must be paid at the same time as the pay for work performed, as well as itemised separately on a payslip.
The re-introduction of rolled up holiday pay for certain workers is likely to be welcomed by many employers and should simplify the administration process for calculating holiday pay for part-year and irregular hours workers. However, it is important to note that the draft Regulations set out clear definitions of irregular hours workers and part-year workers, so it is important that employers check whether a worker falls under the relevant definition before simply adopting rolled-up holiday pay.
The Government will also restate various pieces of retained EU law to retain workers’ protection and entitlement to carrying over annual leave from one year to the next, particularly when a worker is unable to take their leave due to being on maternity leave, family-related leave, or sick leave.
Calculating holiday entitlement for part-year and irregular hours workers
Following the Supreme Court judgment in Harpur Trust v Brazel [2022], the Government consulted on calculating holiday entitlement for part-year and irregular hours workers. The Government proposed introducing a 52-week holiday entitlement reference period based on the proportion of time spent working over the previous 52-week period. This aimed to bring part-year workers in line with the entitlements received by part-time workers who work the same number of hours across the year.
Following the consultation, the Government decided not to introduce a 52-week reference period and instead will legislate to introduce an accrual method to calculate holiday entitlement. This will be calculated at 12.07% of hours worked in a pay period for irregular hours workers, part-year workers and some agency workers. All other workers will continue to accrue 1/12th of their statutory entitlement on the first day of each month to be pro-rated thereafter.
Going forward, part-year and irregular hours workers will now accrue the same amount of annual leave as those who worked the same number of hours across the year but with a different work pattern. Again, this proposal is likely to be embraced by employers, particularly in sectors such as education, where part-year working is common, as it should streamline the administrative process and reduce costs.
TUPE
The Government’s response to the consultation has confirmed that:
- where no existing employee representatives are in place, businesses with fewer than 50 employees will be permitted to consult with affected employees directly; and
- where no existing employee representatives are in place, when there are, or are likely to be, fewer than 10 employees transferring, businesses of any size will be permitted to consult with affected employees directly.
These changes seem sensible and pragmatic and will reduce the burden on employers in certain TUPE situations, as the need for elections of representatives will be avoided. However, it’s important to note that a fair and thorough consultation process will still need to be undertaken, and for those employers who already have employee representatives in place, there will still be a need to consult with them rather than staff directly.
Record Keeping Requirements (WTR)
The ECJ’s judgment in Federación de Servicios de Comisiones Obreras v Deutsche Bank SAE [2019] held that employers are required to set up objective, reliable and accessible systems for measuring the daily working time of all of their workers, to enable them to assess the number of hours their employees worked, when they worked, and the amount of overtime they worked. The ECJ’s ruling brought uncertainty and confusion in respect of the UK’s legal position, as it was not clear whether UK employers were affected by this decision or not.
Following the consultation, the Government has clarified that employers will only be required to keep adequate records to show that an employer has complied with the WTR’s working time limits. The draft Regulations confirm that employers can create, maintain and keep records in a way in which they reasonably see fit.
This is positive news for employers as the confusion created by the ECJ case has been resolved and they will not have to deal with the administrative burden of additional record keeping obligations.
Summary
The changes to record keeping requirements, the approach to annual leave/holiday pay calculations, as well as the TUPE consultation process, are efforts by the Government to improve and simplify areas of retained EU employment law.
Although many of the planned changes are likely to be beneficial to businesses, the Regulations are set to take effect on 1 January 2024, leaving employers with only a few weeks to adjust and prepare. Employers would be well advised to start taking action soon to ensure their systems and calculation methods are compatible with the proposed changes.
It’s also worth noting that the Government has highlighted that it is contemplating making more fundamental reforms to the rate of holiday pay, meaning further changes may be on the horizon. We will update you as and when we know more.
If you would like to discuss how these changes will impact your organisation, please do not hesitate to get in touch with our Employment Team, who will be happy to help.
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