426: Significant changes to holiday pay published

On 7 November 2023, the Government published draft regulations, dealing with some long-awaited changes to holiday pay, TUPE and working time.

These changes are anticipated to come into force on 1 January 2024, with the proposed changes being:

1. Allowing rolled-up holiday pay for irregular hours workers and part-year workers

The regulations will allow for ‘rolled up holiday pay’ to be paid to irregular hours and part-year workers (but these workers only) and also include a definition of who these types of workers are, a method for accrual of leave for irregular hours and part-year workers, when they may take that leave and/or when it can be carried forward, and what is to happen if they take more or less annual leave than they are entitled to take in a leave year.

‘Rolled-up holiday pay’ for these types of workers will be accrued at 12.07% of the number of hours that have been worked in that pay period. Employers will be required to clearly mark rolled-up holiday pay as separate items in payslips.

These changes will take effect in annual leave years starting on or after 1 April 2024.

Other workers will continue to accrue annual leave in their first year of employment as they do now by receiving 1/12th of the statutory entitlement on the first day of each month and to pro-rate it thereafter.

The proposed regulations provide helpful clarity on rules for employers managing irregular and part-time workers which should help resolve the uncertainty in this area.

2. Clarification as to the rate of ‘normal’ pay for annual leave accrual

Currently, the Working Time Regulations (‘WTR’) provide that workers accrue two statutory entitlements to annual leave – 4 weeks which is paid at a worker’s normal remuneration, and 1.6 weeks which is paid at a worker’s basic remuneration) with a single annual leave ‘pot’ of 5.6 weeks.

The Government has decided to retain the existing structure in terms of accrual of annual leave entitlement and minimum rates of pay (ie the 4 weeks and 1.6 weeks to be paid at different rates) but has proposed an amendment to the WTR to confirm that the following types of payment are included when calculating the normal rate of pay which codifies the existing case law on this point:

• 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; and
• payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation.

3. Removing additional record keeping requirements

The draft regulations amend the WTR such that the manner and format in which records about each worker’s daily working hours are to be created, maintained and kept is to be at the reasonable discretion of the employer. As a result, employers will simply be required to maintain ‘adequate’ records to demonstrate that they are complying with the requirements of the WTR.

4. Amendments to TUPE consultation requirements for businesses with less than 50 employees and/or where there are less than 10 employees transferring

The draft regulations provide that for transfers that take place on or after 1 July 2024, the circumstances in which employers can inform and consult directly with employees will extend to businesses with fewer than 50 employees; and where there are fewer than 10 employees transferring (regardless of the size of the employer).

5. Restatement of existing employment rights regarding annual leave carry over

The draft regulations also confirm that these existing employment rights will continue:

• the right to carry over annual leave where a worker has been unable to take it due to being on maternity or other family-related leave;
• the right to carry over up to 4 weeks of annual leave per year for a maximum of 18 months where a worker has been on sick leave; and
• the right to carry over annual leave where the employer has failed to inform the worker of their right to paid annual leave or enable them to take it.

The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 can be viewed in full here.

The government’s full response to the consultations published on 8 November 2023 can be viewed here