What is the effect of the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 for employers?

In November 2023 the Government introduced the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (the Regulations). The Regulations contain significant changes to the way holiday is calculated and paid for part-year and irregular hours workers. They also include some changes to consultation requirements under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) and to the requirements for employers to keep records of workers’ working time. This article outlines the changes and what they mean for employers.  

Holiday entitlement

The Regulations amend how holiday entitlement is to be calculated for part-year and irregular hours workers under the Working Time Regulations 1998. A worker will be a part-year worker if their contract of employment states that they are only required to work for part of the year, and there are periods of at least a week within that year which they are not required to work and for which they are not paid. A worker is an irregular hours worker if the number of paid hours they will work in each pay period under the terms of their contract is wholly or mostly variable.

It was common for employers to calculate the holiday entitlement of part-year and irregular hours workers by multiplying their hours worked by 12.07%. In Harpur v Brazel the Supreme Court held that this method was unlawful under the Working Time Regulations and should not be followed. The Regulations undo the impact of the Supreme Court decision by making it clear that part-year and irregular hours workers will accrue holiday at the rate of 12.07%. The amount of holiday a worker may accrue under the Regulations is capped at 28 days.

Why 12.07%?

Workers are entitled to 5.6 weeks holiday under the Working Time Regulations. For a full-time worker this equates to 12.07% of their working time, on the following basis:  

52 weeks per year – 5.6 weeks annual leave = 46.4 weeks worked per year

5.6 weeks annual leave ÷ 46.4 weeks worked = 12.07%

It follows that if you offer comparable full-time workers more than 5.6 weeks holiday, you will need to offer your part-year and irregular hours staff the equivalent pro-rata entitlement. Failing to give part-year and irregular hours workers an equivalent holiday entitlement to that of your full-time staff may result in a claim under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000.

Rolled up holiday pay

Rolled up holiday pay is when an employer adds a set figure to a worker’s normal hourly wage which is counted as their holiday pay instead of paying the worker when they actually take their holiday. This practice was unlawful in the UK following a decision by the European Court of Justice (ECJ). The reasoning behind the ECJ’s decision was that rolled up holiday may discourage workers from taking their holiday, as they would not receive pay when they take their leave. The Regulations permit the use of rolled up holiday pay for part-year workers and irregular hours workers if the following requirements are met. Holiday pay must be:

• calculated as 12.07% of the worker’s pay;
• paid at same time as their normal remuneration; and
• evidenced on the worker’s payslip.

The provisions regarding rolled up holiday pay and holiday accrual for part-year and irregular hours workers apply to holiday years which begin on or after 1 April 2024. This means that if your holiday year begins on 1 January, the earliest you could apply the changes is 1 January 2025.

Calculating holiday pay

The Regulations do not create one single holiday entitlement of 5.6 weeks as was previously proposed. There will continue to be two categories of holiday. These are:

1. Regulation 13 Leave which is 4 weeks of EU-derived leave, and
2. Regulation 13A leave which is 1.6 weeks of domestic leave.

Regulation 13 leave must be paid at the worker’s normal rate of pay. The Regulations codify existing case law regarding what must be included when calculating a worker’s normal rate of pay for the purposes of paying EU-derived leave. According to the Regulations, normal pay must include:

• “payments, including commission payments, which are intrinsically linked to the performance of tasks which the worker is obliged to carry out under the terms of their contract;
• payments for professional or personal status relating to length of service, seniority or professional qualifications;
• other payments, such as overtime payments, which have been regularly paid to the worker in the 52 weeks preceding the calculation date.”

The remaining 1.6 weeks of domestic leave can be paid at a worker’s basic rate of pay and so do not need to include these additional elements. However, paying different rates of pay depending on whether the worker is taking Regulation 13 or Regulation 13A leave can be administratively cumbersome, especially as many employers do not differentiate between these two types of leave. It may therefore be easiest to pay workers their normal rate of pay every time they take holiday.

Carry over

The Regulations codify existing EU and domestic case law regarding the carry over of untaken holiday. All workers will be permitted to carry forward the four weeks of Regulation 13 holiday into the following holiday year where they were:

• unable to take holiday due to sickness absence;
• not given a reasonable opportunity to take holiday or were not encouraged to take their holiday;
• not informed that if they did not take all their holiday in the relevant annual leave year, they would lose their entitlement;
• wrongly treated as self-employed and therefore not given paid holiday.

Where a worker has carried forward holiday because they were unable to take it due to sickness, they must use it within 18 months from the holiday year in which it accrued.

A worker who was prevented from taking holiday due to family leave may carry forward their full 5.6 weeks entitlement, which must be used by the end of the following leave year.

Working Time Records

A previous decision of the ECJ ruled that employers needed to keep records of the daily working hours of each worker, including rest time and breaks. The Regulations clarify that this is not necessary. Employers may create and maintain records “in such manner and format as the employer reasonably thinks fit” as long as they are sufficient to show compliance with the Working Time Regulations 1998.

Transfer of Undertakings (Protection of Employment) Regulations (TUPE)

Under TUPE, employers are required to inform and consult with representatives of employees affected by the transfer. There is an exception which allows businesses with fewer than 10 employees to consult directly with the affected employees. The Regulations will widen this exception to also include businesses with fewer than 50 employees and transfers where the number of employees being transferred is less than 10. This change will apply to transfers which take place on or after 1 July 2024.  

Practical steps for employers regarding holiday changes

If you have part-year and irregular hours workers and want to change how their holiday is calculated or paid, you will need to issue new contracts that reflect these changes. You will need to get workers’ agreement to the changes and if you will be changing the contracts of more than 20 staff you will need to carry out a collective consultation.

You do not need to change your contracts to alter the way you calculate holiday and holiday pay if you already offer a holiday entitlement that is more generous than what the Regulations require. You can continue to offer more generous holiday to these workers if you wish.

If you do implement rolled up holiday pay, you will need to make sure this is evidenced on your payslips. You should also ensure that your workers who receive rolled up holiday pay still take holiday. You have a duty to provide a safe working environment and this includes ensuring workers are given opportunity to take rest and relax.

You should check to make sure that workers are receiving their proper level of pay when they take holiday, especially if you employ workers who regularly receive commission or overtime.

To minimise the likelihood of workers being about to carry over holiday, you should make sure it is specified in your contract or holiday policy that Regulation 13 leave is deemed to be taken first.

If you would like help amending your contracts of employment and holidays policy, our Employment Team would be happy to help. Contract us at employment@warnergoodman.co.uk or call 023 8071 7717.