As part of the Retained EU Law (Revocation and Reform) Bill, the Government is proposing to reform the Working Time Regulations, the Transfer of Undertakings (Protection of Employment) Regulations and rules on Holiday Pay.
We provide a detailed update on this Bill in May’s Recent and Future Changes Newsletter, in which we reported that the reforms included removing the requirement for businesses to keep records of working hours to evidence compliance with the Working Time Regulations. Proposals to replace the current two annual leave entitlements of ‘normal’ annual leave (i.e., 4 weeks) and ‘additional’ annual leave (i.e., 1.6 weeks), which when combined give a worker 5.6 weeks of paid annual leave, to introduce rolled up holiday pay.
The Government has now published a consultation paper in which it is seeking views from businesses, professional bodies and trade unions and the general public. If you would like to participate, you can do so by 7 July 2023 either by emailing your response to responding directly online. Full details are set out on page 5 of the consultation paper.
In terms of proposed changes, the government is consulting on, they are as follows:
| Normal entitlement
(European law) |
Additional entitlement
(UK law) |
Proposed changes | |
| Holiday Entitlement | 4 weeks | 1.6 weeks | The total amount remains the same, but instead of differentiating two pots of leave entitlement, the proposal is for just one entitlement. |
| Holiday Pay | Holiday pay should be based on ‘normal remuneration’ which EU case law defines as pay that includes overtime, commission, bonuses etc | Holiday pay paid at the basic pay rate.
It will only reflect normal remuneration if the contract states it would or if there is another binding agreement |
The consultation will look at how to define the rate of holiday pay in legislation |
| Carry over of holiday? | No legal right to carry over except in certain circumstances as determined by case law (on long term sick, or maternity/adoption/paternity leave | Yes only if there is a written agreement (contract or some other binding agreement) | No changes to carry over rules |
| Accrual in first year of employment | Accrue 1/12th of the annual leave entitlement at the start of each month until the end of the first year of employment | Accrue annual leave at the end of each pay period until the end of their first year of employment | |
Holiday pay reform
At present, the legal position on holiday pay differs depending on whether the leave that is being taken is from the ‘normal entitlement’, or the ‘additional entitlement’ pot of entitlement, as the table explains.
The Government are proposing to make this simpler for employers to administer, and for employees to understand how holiday pay is calculated. The proposal is to combine these two entitlement pots to create one single pot of annual leave and to legislate to introduce a single rate of holiday pay for the entire 5.6 of paid leave entitlement.
Even though businesses can currently choose to pay one rate of pay by using ‘normal pay’ to do so, there will be many, especially SMEs that don’t and therefore have the administrative burden of using two pay calculations depending on whether someone is absent using their normal entitlement or additional entitlement.
As it stands, there is no clear definitive as to what ‘normal remuneration’ is in practice and so the government are seeking views on how it is currently calculated and how it should be defined for the future.
Changing how holiday entitlement is accrued in the first year of employment
Currently, there is a conflict within the Working Time Regulations that relate to how a worker’s holiday entitlement should be dealt with in their first year of employment.
Section 15A says that workers should accrue 1/12th of their annual leave entitlement each month until the end of their first year of employment. Section 13 and 13A says that workers receive a pro-rated amount of holiday entitlement when a worker starts or leaves midway through a leave year.
The Government want to address this discrepancy and are proposing that workers accrue their annual leave entitlement at the end of each pay period until the end of their first year of employment. Furthermore, proposed legislation will provide a clear method for calculating holiday entitlement for workers in their first year of employment, along with revised guidance.
These proposals are separate from the proposals set out in another consultation that is specifically seeking views on the management of holiday pay for part year and irregular hours workers.
Rolled up holiday pay
The proposal is to introduce ‘rolled up’ holiday pay for all workers. This would workers a sum each month with each payslip to cover holiday pay, instead of only receiving holiday pay at the time of taking annual leave.
The Government wish to allow employers to offer the choice between using the existing 52 week holiday pay reference pay or rolled up holiday pay when calculating holiday pay for those who work irregular hours or part year.
The proposal would allow employers to also use rolled up holiday pay to calculate holiday pay for those who work regular hours.
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