The government has issued its response to the consultation on reforms to retained EU employment law proposed earlier this year. The proposals included:

• Reducing record keeping requirements under the Working Time Regulations 1998 (WTR);

• Simplifying annual leave and holiday pay calculations under the WTR; and

• Relaxing TUPE information and consultation requirements.

Draft legislation intended to bring the changes into effect (the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (the Draft Regulations)), has been published.

In addition to addressing the proposals, the Draft Regulations include new provisions (not referred to in the consultation) regarding the carry-over of annual leave.

The Draft Regulations will come into force on 1 January 2024 and the holiday pay provisions will, in most cases, apply to leave years commencing on or after 1 April 2024.

1. Reduced record-keeping requirements

Currently, reg.9 of the WTR requires that employers must, among other things, keep adequate records to demonstrate compliance with: (i) the maximum weekly working time; (ii) length of night work; and (iii) health assessments and transfers of night workers to day work. However, the 2019 judgment of the Court of Justice of the European Union (Federación de Servicios de Comisiones Obreras (CCOO) v Deutsche Bank SAE) raises the possibility that employers would need to comply with increased record keeping requirements by recording all daily working hours of all workers.

The government believes that the CCOO decision is disproportionate and causes confusion as to what an employer's record-keeping obligations are.

To clarify the position, the Draft Regulations will, once implemented, amend reg.9 of the WTR to:

  • clarify that businesses do not have to keep a record of all daily working hours of all their workers for the purposes of the WTR if they are able to demonstrate compliance without doing so;
  • allow employers to create, maintain and keep adequate records in such manner and format as they reasonably think fit; and
  • reaffirm that record keeping requirements put in place by other legislation, such as for national minimum wage purposes, will remain in place and are unaffected by these latest changes.

The government has confirmed that it also intends to re-publish WTR guidance.

2. Permitting rolled-up holiday pay for irregular hours workers and part-year workers

Rolled-up holiday pay is a system where a worker receives an additional amount or enhancement with every payslip to cover their holiday pay, as opposed to receiving holiday pay only when they take annual leave. Such a system is currently unlawful under European case law.

As part of the consultation, the government proposed to introduce rolled-up holiday pay as a lawful option for all workers. However, in response to feedback received through the consultation, particularly a perception of limited advantage for those on regular hours or full-year workers, the government intends to introduce the ability for employers (should they choose) to roll-up holiday pay for irregular hours workers and part-year workers only.

If employers choose to use rolled-up holiday pay, they will be required to calculate a worker’s holiday pay as 12.07% of the worker’s total earnings within a pay period and to pay the worker with each payslip. Employers should clearly mark such payments as separate items on each payslip.

3. Simplifying annual leave entitlement

Calculating holiday entitlement for part-year and irregular hour workers The Supreme Court's decision in Harpur Trust v Brazel created uncertainty around the holiday pay for part-year workers. The consultation sought views on introducing a 52-week holiday entitlement reference period for part-year workers and workers with irregular hours, based on the proportion of time spent working over the previous 52-week period, with weeks when there was no pay received no longer being excluded from the calculations. This was aimed at bringing such workers in line with entitlements received by part-time workers who work the same number of hours across the whole holiday year.

Feedback demonstrated that employers preferred using the accrual method of calculating holiday entitlement. This accrual method was widely used before the Harpur Trust judgment and better reflects what workers have actually worked in the current leave year, as annual leave is accrued based on time worked over each pay period.

The Draft Regulations legislate to introduce an accrual method to calculate entitlement at 12.07% of hours worked in a pay period (whatever that may be for each employer) for irregular hours workers and part-year workers in the first year of employment and beyond.

Other workers will continue to accrue annual leave in their first year of employment as they do now (and in line with reg.15A of the WTR) by receiving 1/12th of the statutory entitlement on the first day of each month and to pro-rate it thereafter. As with other elements of holiday pay and entitlement, employers may choose to provide more generous contractual terms and give workers a greater annual leave entitlement.

A clearer definition of normal remuneration for holiday pay calculations

The existing law on holiday entitlement (under regs.13 and 13A of the WTR) can cause complications because there are two separate entitlements: (A) four weeks of EU-derived entitlement, plus (B) an additional 1.6 weeks. There are different pay calculations and carry-over rules for each of (A) and (B).

The government will not at this time be introducing a single annual leave entitlement. Instead, it will maintain the distinct 'pots' of annual leave and the two existing rates of holiday pay so that workers continue to receive four weeks at normal rate of pay and 1.6 weeks at basic rate of pay.

As the WTR do not set out what is considered normal remuneration, the government will legislate to clarify this, in light of European case law. The Draft Regulations 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; and
  • payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation.

Carry-over of other leave

The government is restating various pieces of retained EU case law that it considers necessary to retain workers' overall level of protection and entitlement in relation to carry-over of annual leave when a worker is unable to take their leave due to being on maternity leave, family-related leave or sick leave. The government is also introducing a method of accrual of annual leave for irregular hours and part-year workers when they have had other periods of maternity or family-related leave or sick leave.

Removal of pandemic-related extended carry-over of leave As a response to the pandemic, and to prevent workers from losing annual leave entitlement if they were unable to take it due to the effects of coronavirus, the government amended the WTR in 2020. This change allowed workers to carry over four weeks of leave into the following two leave years if it was not reasonably practicable to take it in the year to which it related.

This provision will now be removed with effect from 1 January 2024 so that the pre-pandemic position will return, and workers will no longer accrue Covid-19 carry-over leave. As a transitional measure, workers that still have leave accrued prior to 1 January 2024 will be permitted to use it on or before 31 March 2024.

4. Relaxing TUPE consultation rules

The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) impose obligations upon employers to inform and (if appropriate) consult with recognised trade unions or elected employee representatives in relation to employees who may be affected by the transfer, or any measures taken in connection with it. Currently, micro-businesses with fewer than ten employees can inform and consult affected employees directly in certain circumstances.

The Draft Regulations will allow small businesses (with 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 consult directly with their employees if there are no existing worker representatives in place.

The government acknowledged concerns about the changes adversely affecting the rights of employees involved in transfers and the quality of the consultation but confirmed that the reforms will not remove the existing requirement on businesses to consult employees on transfers. Businesses will retain the choice to elect and consult worker representatives, if that is their preference. Furthermore, where employee representatives – including trade unions – are already in place, employers will still be required to consult them.