New Holiday Pay Laws finally announced

Businesses and HR professionals alike will be breathing a sigh of relief today, following yesterday’s Government announcement around holiday pay, which will (we hope!) simplify and clarify the calculation of holiday pay for workers with irregular hours.

Since the controversial Supreme Court ruling in the case of Harpur Trust v Brazel in October 2022, the law relating to annual leave, particularly for employees who do not have fixed hours of work, has been in a state of flux. Following a Government consultation, yesterday saw the release of draft legislation, intended to come into force on 1 January 2024, which will have a significant impact on the way in which employers calculate and allocate annual leave to their employees.

The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 will amend the current laws on annual leave for workers who have “irregular hours” and those who only work for part of the year. The new legislation sets out the correct calculation of annual leave accrual for these workers as being 12.07% of the hours worked in a pay period (rather than requiring businesses to calculate an average over a 52 week period, which was causing a significant administrative burden for many employers).

The Regulations will go further than this, confirming that employers can pay “rolled-up” holiday pay. This will allow businesses to pay holiday pay as an enhancement on top of salary, instead of offering workers actual time off as annual leave. If an employer chooses to use rolled-up holiday pay, this will also be calculated at 12.07% of the worker’s total earnings within a pay period.

The Government have used this opportunity to clarify in legislation a number of well-established legal principles relating to holiday pay, specifically those relating to the right to carry over holiday entitlement in certain circumstances, and the actual rate of pay for holiday pay (which should, for the avoidance of doubt, include any payments “intrinsically linked” to the performance of the role the worker is carrying out). The legislation also sets out an end date to the carry over of annual leave following the Covid-19 pandemic, confirming that any annual leave that was permitted to be carried over where it could not be taken for a Covid-19 related reason must be taken on or before 31 March 2024.

Other, equally notable (and potentially ground-breaking) changes for employers include changes to the rules around record-keeping, meaning that employers will no longer need to keep records of the daily working hours of their workers, provided they are able to demonstrate their compliance with the rules relating to the maximum weekly working time and the length of night work without such records.

There are also significant changes to the rules relating to TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006), the legislation in place to protect employees’ rights when their employment transfers to a new employer. These changes will reduce the consultation obligations on businesses when TUPE applies, meaning that employers will now be able to consult directly with their employees when there is a TUPE transfer (rather than have to formally elect employee representatives to do so) if they are classified as a “small business” (being those with fewer than 50 employees) or if the transfer involves fewer than 10 employees.

The Government has expressed that these changes aim to minimise unnecessary bureaucracy for businesses without reducing workers’ overall level of entitlement and protection.

However, as is often the case with new legislation, there are a number of unanswered questions around the implementation of the new rules and some fairly complex transitional provisions, which employers may want to take specific advice upon.

In addition, the rules on rolling up holiday pay are less than straightforward, as well as there being strict definitions of “irregular” and “part-year” workers, so many businesses will be unclear as to who they can apply these new rules to within their workforce.

The Employment Team at Leathes Prior have been assisting employers for many years on the constantly shifting rules around calculating holiday entitlement and pay, and are on hand to assist businesses with these new changes, including how to manage, implement, and communicate the changes to staff. The Team are well-versed with dealing with these complexities, so if you would like to know what these changes mean for you, and what you need to do to prepare for the coming legislative changes, please do get in touch with our Employment Team by phone on 01603 610911 or by emailing edisney@leathesprior.co.uk.

Note: the contents of this article are for general information only and do not constitute legal advice. Specific legal advice should be taken in any particular circumstance.