The Government recently published its response to a consultation that sought to address issues with the current laws around working time, holidays, and TUPE.
As part of that, the Government has published draft regulations called the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (the “Regulations”).
The Regulations are expected to come into force on 1 January 2024 and bring with them important changes to the laws on holiday entitlement and pay, TUPE and certain working time rules.
Myerson Solicitors' Employment Lawyers picked out some of the most noteworthy changes below.
Special rules on holiday pay and entitlement for irregular and part-year workers
The Regulations introduce new rules to holiday entitlement and pay that only apply to irregular and part-year workers.
The Government is implementing these various changes for irregular and part-year workers to ensure:
- that workers’ holiday entitlement more accurately reflects the number of hours that they work across the year;
- that it is easier for employers to accurately calculate holiday entitlement for workers with irregular hours where the use of a reference period is impractical; and
- that workers understand their holiday entitlement more clearly.
The Regulations will apply for holiday years starting on or after 1 April 2024.
Who qualifies as an “irregular hours worker” or a “part-year worker” under the Regulations?
A worker is an irregular hours worker, in relation to a leave year, if, under the terms of their contract, the number of paid hours that they will work in each pay period during the term of their contract in that year is wholly or mostly variable.
This may catch certain agency workers and casual or zero-hours workers.
A worker is a part-year worker, in relation to a leave year, if, under the terms of their contract, they are required to work only part of that year, and there are periods within that year (during the term of the contract) of at least a week which they are not required to work and for which they are not paid.
Periods of sick leave or statutory leave (such as maternity leave) are ignored. This is likely to catch seasonal workers and some term-time workers.
Holiday accrual for hours worked – ending the confusion of Harpur Trust v Brazel
The Regulations introduce a new method of holiday accrual for workers.
This has been implemented following the Supreme Court ruling in Harpur Trust v Brazel, where it was decided that irregular-hours and part-year workers would accrue holiday as a percentage of their average working hours, calculated over a 52-week reference period.
This would have resulted in part-year workers being entitled to a larger annual leave entitlement than part-time workers who worked the same number of hours across the year.
Therefore, under the Regulations, employers are able to calculate holiday entitlement for part-year workers and irregular-hours workers as 12.07% of the actual hours worked in a pay period.
However, an average taken over a 52-week reference period will still need to be used for irregular-hours workers and part-year workers on long-term sick leave, maternity leave or other forms of family leave.
Rolled-up holiday pay gets the green light
In addition, the Regulations allow employers to give rolled-up holiday pay to irregular-hours workers and part-year workers.
A practice that has previously been deemed unlawful, rolled-up holiday pay is where a worker’s holiday pay is spread out across the year evenly by adding a top-up amount to their normal payslip and paying this at the time the work is done, rather than it being calculated and paid as and when the holiday is taken.
It is generally seen as a useful payment method for workers with unpredictable working hours, and it is still commonly used in various sectors.
Suppose employers choose to pay rolled-up holiday pay. In that case, they will be required to calculate 12.07% of a worker’s “total earnings” over a pay period (which includes the more generous “normal remuneration” rules derived from EU law, which count certain payments of commission where intrinsically linked to the performance of tasks under the contract and also regular overtime payments).
The Regulations will make clear that businesses do not have to keep a record of workers’ daily working hours.
This is being introduced to address concerns that employers may be required to record the duration of time worked each day by each worker, following the European Court of Justice’s ruling in Federación de Servicios de Comisiones Obreras (CCOO) v Deutsche Bank SAE).
The Government concluded that requiring employers to record the duration of time worked each day by each worker is disproportionate, particularly as the economy is still recovering from the impact of the COVID-19 pandemic and the war in Ukraine.
However, it is worth noting that an employer may still be under obligations to record working time under different legislation, such as national minimum wage laws, in some situations.
Currently, micro-businesses with fewer than ten employees may inform and consult affected employees directly if there are no existing appropriate representatives in place (for example, if there is no recognised trade union).
In other cases, appropriate representatives must be elected, informed and consulted on behalf of individual employees.
The Regulations will extend that flexibility to consult directly with individual employees to businesses with less than 50 employees and also to businesses of any size if they are involved in a TUPE transfer of fewer than ten employees.
In either case, the employer will be able to consult directly with employees where no existing employee representatives are in place.
The draft regulations must still pass through a final stage of the legislative process in parliament, though material changes are not expected.
The proposed regulations on holiday entitlement and pay represent a significant legislative change, with the Regulations codifying many years of EU case law into legislation and also introducing a new system of holiday entitlement for irregular-hours and part-year workers.
Employers that rely on irregular-hours or part-year workers will need to ensure that they are aware of how to calculate holiday entitlement and pay under these new rules in preparation for the implementation of the Regulations in the new holiday year.