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In response to consultations held in early 2023 on holiday pay, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and the Harpur Trust v Brazel ruling, the government has proposed a number of reforms and published a draft statutory instrument containing the relevant amendments.
These amendments will affect:
The government’s response to the consultations on these reforms includes a helpful table, at pages 32-34, summarising the changes.
The government has also published draft regulations which make various amendments to the Equality Act 2010, preserving certain employments rights derived from European law.
All of these changes are due to take effect on 1 January 2024.
Note that these changes will not apply in Northern Ireland.
The requirement for employers to keep detailed records of workers’ daily working hours will be removed. This principle had been suggested by a 2019 European case called Federación de Servicios de Comisiones Obreras (CCOO) v Deutsche Bank and the government intends to remove the impact of this judgment. Employers will still be required to keep adequate records to demonstrate compliance with the Working Time Regulations. However, records will only need to be adequate and proportionate and will not need to include each worker’s daily working hours.
Entitlement to holiday pay falls into two different ‘pots’ of paid annual leave each year under the Working Time Regulations 1998:
1. four weeks’ leave under regulation 13, and
2. an additional 1.6 weeks’ leave under regulation 13A.
The two different ‘pots’ of leave entitlement can cause confusion because of differences in holiday pay rates for the different types of leave and different rules on carry-over to subsequent leave years.
The government’s consultation considered whether it would be simpler for each of these ‘pots’ of leave to be amalgamated into a single leave entitlement. However, the government has decided not to go ahead with this change.
Instead, the government will legislate to clarify what is considered ‘normal’ remuneration for the purpose of calculating holiday pay, to confirm that it includes payments such as commission payments, length of service payments and overtime payments.
The government says this will allow employers to continue with their current payroll systems which distinguish between the two different types of leave entitlement, whilst providing clarity on what elements of pay form part of ‘normal’ remuneration.
‘Rolled up’ holiday pay refers to a payment structure under which a worker’s holiday pay is ‘rolled up’ into their wages, instead of being paid separately during their holiday. This practice was found to be contrary to European law because it might deter workers from taking holiday (because a worker would receive no pay when holiday was taken). However, the reality is that this practice is utilised by many employers, usually to make it easier to deal with holiday pay for workers undertaking irregular hours.
The government proposes to make rolled up holiday pay a lawful practice for irregular hours workers and part-year workers. It will define in legislation what is meant by irregular hours workers and part-year workers. It will also ensure that all employers that choose to use rolled-up holiday pay calculate it based on a worker’s total earnings in a pay period. Rolled-up holiday pay must be at least 12.07% of a worker's pay.
The government will legislate to introduce an accrual method to calculate entitlement to holiday at 12.07% of hours worked in a pay period for irregular hours workers and part-year workers in the first year of employment and beyond (12.07% is used because this represents the proportion of a worker’s 5.6 weeks’ statutory annual leave in relation to the remaining 46.4 working weeks in a whole year.) However, for workers on sick leave or other statutory leave, such as maternity leave, a 52 week reference period should be used.
The government is also restating various pieces of European case law in relation to carry over of annual leave: allowing carry over of annual leave where a worker is unable to take their leave due to family related leave or sickness.
Where irregular hours or part-year workers have been on family-related leave or sick leave, the government will legislate to introduce a 52-week reference period so employers can look back and work out an average of hours worked across that period to calculate their holiday entitlement.
The right to carry over up to 4 weeks’ leave where the employee has been unable to take it due to the effect of Coronavirus, will be removed. Any leave accrued before 1 January 2024 can, however, be used up until 31 March 2024.
Small businesses (with fewer than 50 employees) and businesses of any size undertaking a small TUPE transfer (of fewer than 10 employees) will be allowed to consult directly with their employees if there are no existing worker representatives in place. Note, however, that where employee representatives – including trade unions – are in place, employers will still be required to consult them.
The government has also announced several amendments to the Equality Act 2010, intended to preserve certain employment protections originally derived from EU law. The amendments make no substantive changes to existing equalities protections.
Key amendments under the draft Equality Act 2010 (Amendment) Regulations 2023 include:
A number of other amendments to the Equality Act 2010 will also preserve protections related to pregnancy, breastfeeding and maternity leave.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.
13 November 2023
Insights 06 DECEMBER 2023