Holiday pay changes explained
17/11/2023
Government outlines changes to holiday pay, working time and TUPE
After a long wait, the Government has finally released its responses to consultations on reforms to retained EU laws and the calculation of annual leave entitlement for part year and irregular hours workers.
Below, we summarise what these changes will be.
Rolled-up holiday pay will be allowed
The most significant proposal is to allow rolled-up holiday pay as an optional way of calculating holiday pay for those working irregular hours (e.g. zero hours workers), and part year workers.
Rolled-up holiday pay is a system where a worker receives an additional amount or enhancement with every payslip to cover their holiday pay, as opposed to receiving holiday pay only when they take annual leave. It used to be common for casual or temporary workers to be given rolled-up holiday pay to help make calculating holiday pay simpler, but EU case law says it is not allowed.
The new proposal would give employers a choice between using the existing 52-week holiday pay reference period and rolled-up holiday pay to calculate holiday pay for their workers with irregular hours.
Employers could also choose to use rolled-up holiday pay to calculate and pay the holiday pay of their workers who have regular hours, as the Government anticipates this may have benefits for both workers and employers.
What does this mean for employers?
The Government proposes that that rolled-up holiday pay should be paid at 12.07% of a worker’s pay on each payslip, as 12.07% is the proportion of the year taken up by statutory annual leave (5.6 weeks of statutory annual leave divided by 46.4 working weeks of the year). In other words, statutory annual leave entitlement is 12.07% of hours worked by a worker. Employers would need to adjust this percentage to account for any contractual leave they offer beyond the statutory annual leave entitlement.
Employers will need to make their workers aware that if they choose to start paying rolled-up holiday pay, this payment would have to be clearly marked on a worker’s payslip as their holiday pay. When the worker goes on holiday, they would not receive any further pay whilst away as they would have already received their holiday pay whilst working.
Allowing rolled-up holiday pay is a welcome move to help make dealing with holiday pay for casual and temporary workers more straight-forward.
This will apply in respect of leave years beginning on or after 1st April 2024
Defining irregular hours worker and part year workers
The new regulations define these workers as:
An irregular hours worker: if the number of paid hours that they will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable.
A part-year worker: if, under the terms of their contract, they are required to work only part of the year and there are periods within that year of at least a week which they are not required to work and for which they are not paid. This will include term time workers and some seasonal workers.
Holiday accrual in the first year of employment
The Government also plans to change the way that a worker’s leave is calculated in the first year of employment so that workers would accrue their annual leave entitlement at the end of each pay period until the end of their first year of employment.
What does this mean for employers?
Employers should look out for new regulations which will set out a method for calculating holiday entitlement for workers in their first year of work.
Employers could choose to provide their workers with annual leave entitlement more frequently than monthly, for example, if they pay their workers weekly or daily.
Accrual and carry over of annual leave after sickness/maternity leave
Retained EU case law in relation to carry over of annual leave when a worker is unable to take their leave due to being on maternity/family related leave or sick leave will be restated to preserve employee rights.
An annual leave accrual method will be introduced for when irregular hours workers and part year workers take sick leave or maternity/family related leave.
Covid related holiday provisions
The emergency rules on annual leave implemented in 2020, meaning that workers could carry over four weeks of leave into the next two leave years where it was not reasonably practicable for them to take it due to the effects of Covid, will be removed.
From 1 January 2024, the normal rules will apply meaning 1.6 weeks can be carried over to the next leave year where there is written agreement between employer/employee. Any “Covid carry over leave” accrued by that date but not taken must be taken by 31 March 2024.
Records of working time
Currently, the WTR require that employers must, among other things, keep adequate records to demonstrate compliance with:
- The maximum weekly working time
- Length of night work
- Health assessments and transfers of night workers to day work
However, a recent judgment of the Court of Justice of the European Union set out that employers would need to comply with increased record keeping requirements by recording all daily working hours of all workers.
The response to the consultation clarifies that businesses do not have to follow that case and do not have to keep a record of all daily working hours of all their workers for the purposes of the WTR as long as the employer is able to demonstrate compliance without doing so. An employer will still be obligated to adhere to current requirements to keep records which are adequate to show whether the employer has complied with the WTR.
What does this mean for employers?
Whilst this move is likely to be welcomed by employers, many do not currently record the specific working time of their workers, except for the purpose of calculating pay, so this is unlikely to have a significant impact in practice for most employers.
TUPE
Small organisations (fewer than 50 employees) involved in a TUPE transfer of any size, and organisations of any size doing a transfer of fewer than 10 employees will be able to consult directly with employees, where there are no existing worker representatives, instead of having to elect representatives. Should they choose to, electing representatives will remain an option. Where representatives are already in place, direct consultation will not apply.
If you would like to have a chat about any of the above, please do get in touch on [email protected] or give us a call!