Last reviewed 10 November 2023
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. In particular, it has announced plans to reverse the effects of the Harpur Trust v Brazel decision, which is sure to come as a relief to many employers. In this feature, Croner-i employment law researcher and writer, Stacie Cheadle, looks at the government announcement and what it means for employers.
Two separate consultation periods took place into the changes the Government has now announced together.
The first consultation (chronologically) 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 reforms the Government is putting forward in response to the consultations are hoped to help to simplify and address concerns about the calculation of holiday entitlement for employers and make entitlement clearer for all irregular hours workers, including part-year workers and agency workers.
Working hours record keeping
Employers must, among other things, keep adequate records to demonstrate compliance with:
the maximum weekly working time
the length of night work
health assessments and transfers of night workers to day work.
However, a 2019 European Court of Justice (ECJ) decision held that employers should do more than that, and 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 in complying with this.
The Government has now confirmed that it will remove the effects of that judgment and republish guidance on the Working Time Regulations to clarify the recording requirements on employers.
Rolled-up holiday pay
Whilst some businesses continued to use rolled-up holiday pay despite EU case law finding it was unlawful, the decision in Harpur Trust v Brazel put a final end to its use in the UK when it held that the method of using 12.07% to calculate accrual was not compliant with the law.
The Government has now confirmed its intention to introduce rolled-up holiday pay into legislation for those who work irregular hours or for part of the year. This is to be calculated based on the total earnings over the pay period.
In response to concerns raised in the consultation that paying holiday in this way could result in missed leave, the Government says existing safeguards are strong enough to prevent this. It pointed to the requirement to provide an opportunity for workers to take leave and where a worker cannot work more than 48 hours a week on average (normally averaged over 17 weeks) unless they choose to opt out, as examples of this.
Calculating leave entitlement for irregular hours workers and part-year workers
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 irregular hours workers and those who work for part of the year. This will be based on the number of hours worked in the pay period, eg weekly, monthly or even daily. Agency workers who work for part of the year or have irregular hours will also be able to have their holiday accrual calculated in this way.
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
Emergency rules on annual leave 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.
The Government will now remove this right of carry-over. From 1 January 2024, workers will no longer accrue Covid carry-over leave. Workers will still be able to use all leave accrued prior to 1 January 2024, on or before 31 March 2024.
Provisions relating to carry-over of 1.6 weeks in the Working Time Regulations will not be affected by this change.
TUPE will 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 if there are no existing worker representatives in place.
In response to the concerns of trade unions and some employers that this was a weakening of existing worker protections, the Government said that these reforms won’t change the requirement to consult during a TUPE transfer. Where representatives, including trade unions, are already in place, the obligation will still be to consult with them.
In relation to concerns that these reforms would make transfers more complex, the Government offered reassurance to employers that these changes will be “permissive” only. The choice to elect and consult with representatives will remain available to businesses who prefer that method.
Clarification of “normal remuneration”
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.