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Reforms to EU laws, holiday entitlement, and holiday pay announced

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Peninsula Team, Peninsula Team

(Last updated )

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. It has also confirmed it will reverse the effects of the Harpur Trust v Brazel decision, which is sure to come as a relief to many employers.

The first consultation was on the calculation of holiday entitlement received by part-year and irregular hours workers, following the Supreme Court judgment in Harpur Trust v Brazel. This proposed to introduce a holiday entitlement reference period for part-year and irregular hours workers, to ensure that their holiday pay and entitlement is directly proportionate to the time they spend working.

The other consultation set out proposals for key areas of retained EU employment law that the Department for Business and Trade (DBT) is responsible for and sought views on three areas of retained EU employment law which could benefit from reform:

  • Record-keeping requirements under the Working Time Regulations 1998
  • Simplifying annual leave and holiday pay calculations in the Working Time Regulations
  • Consultation requirements under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

The Government has now published its response to both these consultations. The proposed reforms are hoped to help to simplify and address concerns about the calculation of holiday entitlement for employers and make entitlement clearer for all irregular hour’s workers, including part-year workers and agency workers.

So, what are the proposed reforms?

The Government has confirmed that it will remove the effect of a 2019 European Court of Justice (ECJ) decision that held that employers should record all daily working hours of all workers. This created a risk for employers who did not do this, and a potentially significant administrative burden. The Government will, therefore, republish guidance on the Working Time Regulations to clarify the recording requirement on employers.

“Rolled-up” holiday pay is when an employee is paid holiday pay at the same time as they receive basic pay, so they are “rolled” together. The Government has confirmed its intention to introduce rolled-up holiday pay into legislation for those who work irregular hours or for part-year workers (anyone who doesn’t work every week of the year). It is to be calculated based on the total earnings over the pay period. It is important, however, that the worker will still have to take their annual leave entitlement, but they just don’t get paid for it when they actually take the leave.   

The decision in Harpur Trust v Brazel meant that irregular hours workers and part year workers got 5.6 weeks’ annual leave and pay per leave year even if they only worked a small number of hours in the year. The Government will now introduce legislation allowing for the 12.07% method of calculating holiday accrual to be used for these types of workers. This will be based on the number of hours worked in the pay period.

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. But, emergency rules on annual leave which were 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 because of Covid, will be removed.

TUPE will also be reformed to remove the need to consult with representatives in small businesses (fewer than 50 employees) undertaking a transfer of any size, and businesses of any size undertaking a small transfer of fewer than 10 employees, to allow for consultation with employees directly. Only if there are no existing worker representatives in place.

Finally, legislation will be introduced to clarify what is meant by “normal remuneration” when it comes to holiday pay. This will require that the following types of payment are included when calculating the normal rate of pay:

  • Payments, including commission payments, intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out.
  • Payments for professional or personal status relating to length of service, seniority, or professional qualifications.
  • Payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation.

The draft regulations to enact all the above have been laid before Parliament for approval. It is expected that they will become law on 1st January 2024 but for rolled-up holiday pay and the pro-rata of annual leave entitlement for irregular hours and part-year workers this will take effect for holiday leave years which begin on or after 1st April 2024.

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