On 1 October 2007 the statutory minimum holiday entitlement in the United Kingdom increased from 4 to 4.8 weeks. This means an increase from 20 to 24 days in the case of employees working a five day week, and proportionately for part timers working fewer days per week. There will be a further increase to 5.6 weeks (28 days) in Great Britain (6 weeks (30 days) in Northern Ireland) on 1 April 2009. This second increase has been delayed from 1 October 2008 to allow employers more time to prepare for the changes. The changes which affect Great Britain (excluding Northern Ireland) are contained in the Working Time (Amendment) Regulations 2007 (the “new Regulations”) which amend the Working Time Regulations 1998 (“WTRegs”). Corresponding regulations have been made for Northern Ireland.

The position prior to 1 October 2007

Under the WTRegs (which implement an EU Directive), UK workers have, since November 1999, been entitled to four weeks’ paid leave annually, which must be taken during the year in which it is due, and may not be replaced by a payment in lieu, except where the worker’s employment is terminated. Unlike in other EU member states, UK employers may legally include public holidays as part of the four weeks’ statutory leave. This has made the UK statutory holiday entitlement the lowest in the European Union. Germany, for example, provides for a minimum of 29 days annual leave with 20 days separate from and therefore additional to between 9 to 13 days public holidays. French workers enjoy 36 days annual leave (25 days holidays plus 11 public holidays); in Italy the statutory entitlement is 20 days plus 12 public holidays. It is also worth noting that there are collective agreements in many European countries which cover a large proportion of the working population and provide for even greater holiday entitlements.

How do the new Regulations deal with public holidays?

Although the eventual increase in statutory holidays in Great Britain and separately, Northern Ireland, is equivalent to the amount of public holidays, the new Regulations do not give workers a statutory right to take annual leave on a public holiday

Who will benefit from the new Regulations?

Around four fifths of the working population in the UK will not be materially affected because most have employment contracts under which they are already entitled to the eight public holidays (or 10 in Northern Ireland), or the equivalent paid time off, in addition to at least the 4 week statutory minimum entitlement.

The greatest impact of the increase in statutory annual leave will be on the hotels, restaurants and wholesale/retail sectors; in all of which there are large numbers of low paid workers who are not represented by a union. The Government hopes that the increased holiday entitlement will lead to greater productivity (per head productivity in the United Kingdom is currently amongst the lowest in the European Union) and an increase in spending and related economic benefits. However, affected employers are bound to face increased operating costs when the new rules are in force. The average cost to all employers of increasing statutory leave by eight days is estimated to be approximately 3 per cent of annual wage costs.

Do your contracts comply with the new law?

A contract of employment which provides for at least 20 days PLUS public holidays will be in compliance with the new law both as at 1 October 2007 and 1 April 2009. Similarly, a contract which provides for at least 24 days annual leave including public holidays will be in compliance with the new law as at 1 October. Any provision which provides for less, however, will be overridden by the new law e.g. a contract of employment which provides for 20 days INCLUDING public holidays. Some contracts of employment might even lead to an unexpected increase in holiday entitlement above the statutory minimum. For example, a contract that provides for an entitlement to statutory annual leave IN ADDITION TO public holidays would effectively give the employee 36 days with effect from 1 April 2009 as the new Regulations make no reference to public holidays.

Is it possible to pay in lieu of holiday?

In order to help employers with transitional arrangements, payment in lieu of the additional element of the holiday entitlement will be permitted until 1 April 2009, as a temporary measure. After that date, no payments in lieu of any statutory annual leave will be permitted except when the worker’s employment is terminated. Where employers currently allow payments in lieu for leave in excess of the current statutory entitlement, this will only be permissible after 1 April 2009 for the then minimum of 28 days.

Can holiday entitlement be carried forward?

The additional holiday entitlement can be carried forward when agreed by both employer and employee but there is no automatic right for workers to request to do so. It will remain the case that 4 weeks annual leave must be

presented for information purposes and is not intended to constitute legal advice. ©Reed Smith Richards Butler LLP 2007. All rights reserved. taken in every year and cannot be carried forward even with the parties’ agreement.

Will the changes apply to everyone?

The new regulation 13A of the WTRegs (which sets out the new rules regarding the additional holiday entitlement) will not apply to employers who, at 1 October 2007, already provide 5.6 weeks (i.e. 28 days for those working a full five day week) holiday or more to all their workers and, in relation to the first 28 days (if more is provided), they do not make a payment in lieu (other than on termination) or permit carry-over of more than 8 days.

As there is no qualifying period for the additional holiday, those who have been working for their employer for less than one year as at 1 October 2007 will be entitled to benefit from the changes but the entitlement accrues over the course of the first year of employment at the rate of 1/12th on the first day of each month. The provision that partial days’ holiday are rounded up to the nearest full day has been removed from the WTRegs. The same principle will apply to those workers with less than one year’s service as at 1 April 2009 when the holiday entitlement increases to 5.6 weeks.

How is the additional entitlement calculated?

Probably the most complicated issue for employers will be the calculation of workers’ holiday entitlement during the transitional period in which the statutory requirement is to be increased, unless their holiday year happens to commence on 1 October. For leave years which begin before 1 October 2007, entitlement for that year should be pro-rated by multiplying the proportion the leave year has left to run at 1 October 2007 by 0.8 (i.e. the additional statutory entitlement introduced on that date). A worker whose holiday year runs from 1 January 2007 would get:

Leave year beginning 1 January 2007:

12 months at four weeks’ holiday, plus three months at 0.8 weeks (3/12 x 0.8, which is 0.2 weeks), making a total entitlement for 2007 of 4.2 weeks, of which 0.2 weeks may be carried over to the next year.

Leave year beginning 1 January 2008:

12 months at 4.8 weeks, of which 0.8 weeks can be carried over.

Leave year beginning 1 January 2009:

12 months at 4.8 weeks, plus nine months at 0.8 weeks (9/12 x 0.8 which is 0.6 additional weeks), making a total entitlement for 2009 of 5.6 weeks, of which none may be carried over to the next year.

See the BERR’s (formerly DTI) Holiday Entitlement Ready Reckoner for more

What should employers do now?

Employers should check their contracts of employment to ensure they provide for adequate holiday entitlement, and, in particular, whether any changes need to be made as regards payment in lieu, or carrying over, of unused leave. You should notify current workers of the changes and adjust new workers’ contracts and existing staff handbooks to clarify the implications of the new rules.

Click here for the Working Time (Amendment) Regulations 2007. details.