Earlier in the year the UK government carried out consultations on:

  • Retained EU employment law and proposals to reform the Working Time Regulations (record keeping, annual leave entitlement and holiday pay) and TUPE Regulations (read our earlier blog); and
  • Calculating holiday entitlement for part-year and irregular hours workers.

The response to both consultations has now been published and new regulations are intended to come into force on 1 January 2024.

The government has decided not to go ahead with its proposal to introduce a single annual leave entitlement. Instead it will carry on with two distinct 'pots' of annual leave (4 weeks' basic leave derived from the EU Working Time Directive and 1.6 weeks' domestic additional leave) and the two existing rates of holiday pay ('normal remuneration' for basic leave, and basic pay for additional leave unless the contract provides otherwise). However, it has introduced draft legislation which will:

  • Clarify what is considered normal remuneration when calculating holiday pay for the 4 weeks' basic leave. The following will have to be included:
    • 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
    • Payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation
  • For leave years which start on or after 1 April 2024, and in respect of irregular hours and part-year workers only (which could include some agency workers):
    • Annual leave will accrue at the rate of 12.07% (5.6 weeks of statutory annual leave divided by 46.4 working weeks of the year) of hours worked in each pay period. Holiday entitlement will be calculated at the end of each pay period rather than monthly to give employers flexibility.
    • Employers can choose to implement a system of rolled-up holiday pay (in terms of which a worker receives an additional amount with every payslip to cover their holiday pay, as opposed to receiving holiday pay only when they take annual leave). Rolled-up holiday pay will be payable at 12.07% of a worker’s total earnings in a pay period.
  • Restate the principles derived from EU law in relation to the carry-over of annual leave when a worker has been unable to take their leave due to being on maternity or sick leave, or where the employer has failed to (i) recognise a right to holiday, or a right to paid holiday; (ii) give the worker a reasonable opportunity to take holiday or encourage them to do so; or (iii) inform the worker that holiday not taken will be lost at the end of the leave year.
  • Set 31 March 2024 as a backstop for the carry-over of leave (accrued before 1 January 2024) under the Covid-19 provisions – which enabled leave to be carried forward into the following leave year where it was not reasonably practicable for a worker to take it due to the effects of coronavirus.

Working time record keeping requirements

Under the Working Time Regulations, employers must keep and maintain 'adequate' records showing that (i) working time (including overtime) for workers who have not opted-out does not exceed an average of 48 hours per week; and (ii) the limits on night work have been complied with. A 2019 decision of the European Court of Justice went further, however, and required employers to set up a system to accurately record all the hours worked every day by each worker including overtime, rest breaks and rest periods.

The government believes that this requirement was disproportionate and created uncertainty: going forward employers will not have to keep a record of each worker's daily working time. They will just need to keep records in a manner and format they think fit to demonstrate compliance.

TUPE information and consultation

The Transfer of Undertakings (Protection of Employment) Regulations require both the transferor and transferee to inform and (in some circumstances) consult with employee representatives of their affected employees. The government is going to introduce flexibility for (i) businesses with fewer than 50 employees; and (ii) transfers affecting less than 10 employees. In either of these situations, for TUPE transfers taking place on or after 1 July 2024, it will be possible to inform and consult directly with the affected employees where there are no existing representatives in place.

In practice

These proposals represent a significant change to the rules on holiday entitlement and pay. The new accrual method, together with the re-introduction of rolled-up holiday pay, will provide employers with a greater degree of flexibility as regards irregular hours and part-year workers. However, the fact that the distinction between basic and additional annual leave remains, means that holiday pay calculations will still not necessarily be straightforward.