In July 2023 the Government published a consultation paper which proposed a number of reforms in the areas of working time, paid holiday rights and rights upon the transfer of a business or an outsourcing.
On 8 November 2023, the Government published its response to the Consultation, setting out which reforms will be taken forward together with a draft Statutory Instrument intended to bring the changes into effect.
Below we set out in brief what is and is not coming into effect.
Regulation 9 of the Working Time Regulations (WTR) will be amended to clarify that businesses do not have to keep a separate record of the daily working hours of workers provided that they are able to “demonstrate compliance without doing so.”
Action: there is no longer any need to record daily working hours as long as employers can show compliance with the WTR.
Accrual of annual leave
The Government has decided to change the position on accrual of leave for “irregular hours workers” and “part-year workers” only (and there will be new legal definitions of both categories of workers). The new position will apply throughout the employment relationship, not just in the first year as originally proposed.
There will be no change to the accrual of leave for other workers, who will continue to accrue their 5.6 weeks’ leave at the beginning of the leave year, save for in the first year of employment.
Under the new system, irregular hours and part year workers will accrue annual leave at the end each pay period at a rate of 12.07% of the number of hours worked in that pay period, up to a maximum of 28 days per year. Special rules will apply if the worker is on sick leave or family leave.
Importantly, this new system will reverse the effect of an earlier Supreme Court decision which said that the holiday entitlement of part-year workers could not be pro-rated below 5.6 weeks’ per year, no matter how many weeks they had actually worked each year.
The new accrual system for irregular hours and part-year workers will apply to leave years commencing on or after 1 April 2024 only.
Employers will need to decide whether it will allow such workers to book and take more holiday than they have accrued under the new “accrue-as-you-go” system. If this is to be permitted, employers should ensure that they have a right to make deductions in respect of any holiday taken but not accrued as and when the employment relationship ends.
Action: annual leave for irregular and part-year workers is now proportionate to the number of hours they actually work and accrue annual leave at the rate of 12.07% for the pay period up to 28 days a year.
One vs two types of annual leave
The WTR provides that workers are entitled to 5.6 weeks’ annual leave per year.
However, this entitlement is split into two:
- 4 weeks’ leave as required by the WTD (Regulation 13 leave); and
- 1.6 weeks’ leave which was granted by the UK Government on top of the minimum WTD requirement (Regulation 13A leave).
Different rules about pay apply to Regulation 13 leave and Regulation 13A leave.
ECJ caselaw has made it clear that workers must be paid their “normal pay” for Regulation 13 leave. This includes commission, allowances and some t overtime payments. Workers are only entitled to be paid basic pay for their Regulation 13A leave (although employers may elect to pay normal pay for Regulation 13A leave if they wish).
It was proposed to replace Regulation 13 leave and Regulation 13A leave with a single leave entitlement of 5.6 weeks and views were sought on what the applicable rate of pay should be.
The Government decided not to take this proposal forward and, instead, the two distinct types of leave and their associated rates of pay will remain.
However, the WTR will be amended to explain which types of payments count when determining pay for Regulation 13 leave as follows:
- payments, including commission payments, which are intrinsically linked to the performance of tasks which a 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; and/or
- other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date (it does not expressly state whether voluntary overtime payments should be included, however, if they are “regularly paid” to a worker then we think they will probably count).
Employers should have already incorporated these types of payments into their calculation of Regulation 13 holiday pay. However, if not this should be done now.
Action: No change
Carry-over of annual leave
The Consultation proposed to remove the regulations which permitted workers to carry over their Regulation 13 leave into the following two annual leave years where it was not reasonably practical to take it during the coronavirus pandemic. These are now no longer needed.
This means that from 1 January 2024, workers will not be able to carry over any accrued Covid-related Regulation 13 leave. Workers have until 31 March 2024 to use up any Covid-related leave that was accrued before 1 January 2024.
Additionally the Government has decided to amend the WTR to clarify when workers may carry over accrued leave in other circumstances.
Rolled-up holiday pay
“Rolled-up” holiday pay is a system whereby pay is enhanced during periods of work rather than allocated to specific periods of annual leave taken. In 2006, the ECJ ruled that the practice of rolled-up holiday pay was unlawful and that workers should be paid holiday pay at the time that their annual leave was taken.
The Government has decided that those working irregular hours and part-year workers (and, as above, there will be new legal definitions of both categories) may be paid rolled up holiday pay. Rolled-up holiday pay will not be permitted for other types of workers.
Where an employer elects to pay rolled-up holiday pay to an eligible worker, it must be:
- calculated at 12.07% of the worker’s pay;
- paid at the same time as pay for work done; and
- itemised separately on the payslip.
Special rules will apply if the worker is on sick leave or family leave.
Rolled-up holiday pay will be permitted for leave years commencing on or after 1 April 2024 only.
Action: Rolled up holiday pay now permitted for irregular and part-year workers.
Changes to TUPE consultation requirements
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protect employees’ rights when the business or undertaking for which they work transfers to a new employer, either when the business changes owner or a service is transferred to a new provider.
Currently, before such a transfer, the outgoing employer must inform and consult with representatives of the affected employees. These can be existing representatives (e.g. trade union representatives) or ones that are elected just for this purpose. However, outgoing employers with up to nine employees may inform and consult with affected employees directly where there are no such existing representatives in place.
Now employers will have the option of consulting with affected employees directly for businesses:
- with up to 49 employees; or
- with any number of employees where a transfer of up to nine employees is proposed.
However, this option would only be available where there were no existing representatives.
Action: TUPE Consultation can now be done directly as above.
What should employers do now?
These reforms are due to come into force on 1 January 2024, except for the changes affecting irregular hours and part-year workers, which will apply to holiday years on or after 1 April 2024.
Some of these changes may require changes to employment contracts and staff handbooks, for example introducing rolled-up holiday pay or TUPE consultation processes.
We would recommend that employers conduct an audit of their existing arrangements and then identify any necessary and desirable changes to be made.
If you would like our help do reach out and Happy New Year!
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.