Government Consultation Response to Holiday Pay and TUPE Reforms

The government’s response to its consultation on Retained EU Employment Law was published on 8 November 2023 and is likely to be a welcome outcome for many employers, with the education sector finding the forthcoming changes a relief to the recent confusion on how holiday pay and entitlement is calculated for atypical workers, such as irregular hours workers and term time workers.

The consultation was launched in May 2023 to consider reforms to retained EU employment law, including the Working Time Regulations and TUPE Regulations, and gather opinions on holiday entitlement for irregular workers.

The draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 are still being finalised, but significant changes are not expected, and the reforms are due to be implemented on 1 January 2024. The main points to note are set out below:

Atypical workers - key changes to holiday rights expected in 2024

The changes to how holiday pay is calculated and paid will have the biggest impact to employers of atypical workers:

“Part year workers” includes seasonal workers and term time only workers who are only required to work part of the year under their contract.  There are periods of the year of at least one week during which they are not required to work and not paid to work, for example, during school holidays.

“Irregular hours workers” includes workers who works “wholly or mostly variable” hours during the holiday year and usually includes some agency workers, variable hours workers and zero hours workers.

Holiday Pay

1. Accrual of holiday pay for atypical workers

in contrast to the decision of Harpur Trust v Brazel, the government has decided to opt for an accrual method of calculating holiday pay at 12.07% of hours worked in any pay period. This method of calculation will only apply to irregular hours workers and part-year workers and expected to apply for holiday years from 1 April 2024.

Workers with regular hours will continue to accrue holiday in their first year of employment at a rate of 1/12^th on the first day of each month.

2. Holiday pay enhancement/rolled up holiday pay

Removal of the prohibition of rolled up holiday pay. The government has also confirmed that it will introduce rolled-up holiday pay for irregular hours and part-year workers expected to apply to holiday years commencing from 1 April 2024, which may include certain agency workers. This will allow employers to pay these workers an additional amount on top of their regular pay in respect of holiday pay for each pay period, rather than paying the workers when they take holiday.

The government will be giving employers discretion as to the practicalities of how such workers can book and take annual leave.

3. Irregular hours

Calculating holiday pay for irregular hours workers and part year workers who are on long term sick leave or family leave, including a 52-week reference period. However, the plans to introduce an overarching 52-week holiday entitlement reference period were scrapped.

Other relevant changes

Holiday entitlement

The government has confirmed that it will maintain the current position regarding holiday entitlement; whereby workers are entitled to 4 weeks’ holiday at normal pay under EU law and an additional 1.6 weeks’ holiday at basic pay under the Working Time Regulations.

The government had proposed to introduce ‘one pot’ holiday entitlement of 5.6 weeks but concluded that this would not be beneficial, given the different pay rates involved.

The government has advised that it will introduce legislation to clearly define ‘normal pay’ for the purposes of calculating holiday pay for the 4-week basic entitlement as part of its reforms.

Holiday carry forward

Under the reforms, workers will be allowed to carry forward untaken holiday where they have been wrongly categorised as self-employed and therefore not entitled to take holiday.

The government is also going to clarify the position regarding carry over following sickness absence or family leave by implementing new legislation.

Under the new legislation, a worker will be able to carry forward their full holiday entitlement (5.6 weeks) into the following year if they have been prevented from taking holiday due to family leave.

The new legislation will also allow workers to carry forward their 4 weeks’ EU-based holiday entitlement due to sickness absence, provided such holiday is taken within 18 months of the end of the holiday year in which it was accrued. 

Working Time Regulations

The government is going to implement reforms to the Working Time Regulations, which confirm that businesses are not required to keep a daily record of workers’ working hours, provided they can demonstrate compliance with the Regulations.

These reforms are intended to resolve uncertainty following a 2019 EU Court of Justice case. 

TUPE

The government will reform TUPE consultation requirements so that small businesses (with under 50 employees) can consult directly with affected employees if no employee representatives have been elected.

Under the new law, employers of all sizes will be able to consult directly with employees on small transfers of less than 10 employees, where there are no elected employee representatives.

How to prepare for the changes ahead

In light of the reforms coming in early next year, it would be useful to review your organisation’s holiday policies and procedures so that you can update them accordingly.

If you employ irregular hours and/or part-year workers, then you should compare your current holiday pay system to the new 12.07% calculation and consider whether it would be beneficial to switch to rolled-up holiday pay.

Please get in touch if you would like any advice or assistance regarding holiday pay and the upcoming reforms in this area.

Please get in touch with our employment law solicitors if you would like any advice or assistance regarding holiday pay and the upcoming reforms in this area. You can contact our team by completing the enquiry form below.