Holiday entitlement and other EU laws are changing - here’s how

  • Employment Law
two people sit across a table full of documents, a gavel is in the foreground.
James Potts - Legal Services Director at Peninsula

James Potts, Legal Services Director

(Last updated )

Recently, the government made a big announcement about the fate of our employment laws. And HR is set to see some major changes off the back of it…

You may remember last year when the government said they were planning to review all EU-derived laws so they could decide whether to keep, change or remove them. And any laws they chose not to keep or do anything with would expire at the end of 2023.

Well if that wasn’t complicated enough, that’s no longer the case. Now, the government wants to keep all EU-derived laws unless they decide to change or remove them.

It turns out that most employment laws will stay the same, except for a few major ones. And the ones that are changing aim to make life simpler and easier for you.

So, here are the latest updates you need to know about – in plain English. Because what you don’t need is legal risk. Nor, do you want to be stuck using costly, complicated, and outdated processes by the time the year’s out…

1.      5.6 weeks of holiday will be a single entitlement

There’s been an ongoing issue with how overly complicated it is to calculate holidays for someone who isn’t a full-time employee.

So, the government is saying they want to make it easier and simpler to calculate holiday entitlement and pay for all workers.

Currently, almost everyone is entitled to 5.6 weeks of holiday a year. Under existing regulations, this holiday entitlement is split into two. Meaning, most people get four weeks of EU leave and 1.6 weeks of domestic leave.

The government now realises there’s a problem with this. Because two sets of entitlements means two sets of rules for calculating pay. So, when you calculate holiday pay for the first four weeks, you have to include any additional payments like bonuses or overtime. You also can’t carry this holiday over unless there’s a mitigating circumstance (like long-term sickness or family leave).

But the opposite applies to the last 1.6 weeks. For this, you only have to pay the basic rate (not including commission) and you can carry it over if you have a written agreement with your employee.

And to make it more confusing, the Working Time Regulations don’t specify which rule you’re supposed to apply first in a leave year…

That’s why the government wants there to be only one system for calculating holiday pay. Which means they could ask employers to pay either the full rate for the 5.6 weeks (which includes bonuses, etc) or the basic rate.

What does this mean for my HR?

On the one hand, having to pay the full rate for 5.6 weeks could end up being very costly for you. On the other hand, asking you to pay the basic rate could have a negative impact on your employee’s finances…

We don’t yet know which option they’ll go for. But it’s important for you to be ready in case you need to make changes to your documentation or navigate a staff dispute over pay. So, if you’re in any doubt or have questions, it’s best to seek advice.

2.      Rolled up holiday pay will acceptable

Legally, you’re not supposed to roll up someone’s holiday pay. In other words, you’re not supposed to pay someone extra money on top of their hourly wage and call it ‘holiday pay’. But under current regulations, some businesses are able to find loopholes…

The issue with rolled-up holiday pay is that workers don’t get paid when they’re actually on holiday because you’ve technically already paid them. So, workers might not want to take holiday, because you’re not paying them at the time they’re off.

But calculating holiday for workers who have irregular hours is complicated. Which is why a lot of people who hire agency staff and zero-hour workers prefer the roll up method.

And it’s because of how complicated holiday pay calculations are that the government actually want to bring it back…

What does this mean for my HR?

If it becomes acceptable to roll up holiday pay and you choose to do it, you’ll be able to pay staff their holiday pay and basic pay at the same time.

But you’ll need to make a note in your contracts and payslips. So, you’re being clear that this extra pay you’re adding on top of your worker’s wage is their ‘holiday pay’.

You’ll also need to be aware of a potential health & safety risk if your workers don’t take all of their holiday. Research suggests that staff who don’t take their holiday are at a higher risk of burnout and mental health problems.

So, you would need to make sure your staff take their holiday. And if they’re not willing, you can enforce annual leave as long as you give them double the amount of notice for how many days you’re asking them to take off.

3.      More businesses won’t need to consult employee reps if they change hands

If your business changes hands, it’s important to make sure your employees go on to continue their employment under the same terms and conditions. And if that’s not possible, the employer who’s taking over has to meet certain legal conditions.

Under current transfer regulations, businesses have to consult with elected employee reps about the transfer and arrange an election if they don’t already have reps. It’s only if you have fewer than 10 employees that you can consult staff directly.

But the government now wants to extend this rule. So, if you have fewer than 50 employees or a transfer involving less than 10 employees, you will also have the right to consult staff directly.

What does this mean for my HR?

This update means more businesses will be able to avoid the time-consuming and tricky nature of electing employee reps.

But while this may be more convenient, it could also be problematic. Consulting staff directly takes up a lot of time too.

So, if you are considering a transfer, you may want to seek advice on how best to consult your staff and elect reps, to help make the process as easy and smooth as possible.

4.      Non-compete agreements will have a three month limit

You might have a non-compete agreement in your staff contracts to prevent ex-employees from working for competitors.

Currently, there’s no law that limits how long this agreement can last. 

Now, the government is looking at limiting non-compete clauses to three months. The idea is to allow employees more freedom to change jobs and earn more money. Plus, help businesses hire from a wider talent pool.

What does this mean for my HR?

Having such a limited non-compete clause could create issues for you if your employee jumps ship to a competitor much sooner. It could put your company confidentiality or relationships with clients at risk.

One thing you could potentially do to avoid this is to give employees longer notice periods. But this would require making changes to your contracts and you would need to get your employee’s consent.


Legal updates are a headache. So, if you’re worried about how an update might affect your business, don’t hesitate to get in touch.

Whether you’re looking for advice on how to handle holiday pay, a staff dispute, or a confidentiality risk, tap below to book in for a free advice call and we’d be happy to answer any queries.

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