The Government introduces draft legislation on the calculation of holiday entitlement.

The Government introduces draft legislation on the calculation of holiday entitlement.

On 8th November 2023, the Secretary of state for Business and Trade introduced the Draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023.The regulations make provisions relating to employment under the Work and Families Act 2006 and the Retained EU Law (Revocation and Reform) Act 2023. This follows on from the government’s response to two consultations launched earlier this year on the holiday provisions under the Working Time Regulations 1998 (WTR 1998) and on the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) published on the same day.

The regulations seek to amend sections of the TUPE regulations and the WTR 1998. The regulations are scheduled to come into effect in Great Britain on 1st January 2024. The draft regulations are a significant step in the REC’s calls for the government to provide some much-needed clarity on the calculation of holiday entitlement and holiday pay for agency workers, particularly in light of the outcome of the Harpur Trust v Brazel case.

The draft regulations introduce the following key changes:

* A definition of irregular hours worker for the purposes of leave. A worker is in scope if the number of paid hours that they will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable.

* A definition of a part year worker for the purposes of leave. A worker is in scope if under the terms of their contract, they are required to work only part of that year and there are periods within that year (during the term of the contract) of at least a week which they are not required to work and for which they are not paid.

* A statutory right to carry over leave that a worker was unable to take in the leave year in which it was accrued due to sick leave. This which was previously provided for in case law. The leave can be carried over into the following leave year for a period of up to 18 months from the end of the leave year in which it was accrued.

* A statutory obligation to inform a worker of their entitlement to leave/pay instead of leave, to provide them with the opportunity to take the leave and to inform a worker that any leave not taken by the end of a leave year will be lost. This obligation was previously provided for in case law.

* It will be lawful to pay rolled up holiday pay to irregular hours workers and part year workers using the 12.07% accrual method. Holiday entitlement will be accrued at the rate of 12.07% of the hours worked by a worker in each pay period and holiday pay will be paid at a rate of 12.07% of the remuneration received in each pay period. Payslips must indicate the amount of holiday pay that has been paid for the period to which the statement relates.

* A 52-week reference period for the calculation of holiday entitlement and pay for irregular hour workers and part year workers when they are on statutory leave or on sick leave. The draft regulations introduce a 52-week reference period which will allow employers to look back and work out an average of hours worked across that period. Employers will need to include weeks not worked and not on statutory leave, so it is proportionate to the time actually worked. When calculating holiday pay an employer could use the current 52 weeks reference period for holiday pay however, weeks when a worker was not working should be excluded.

* Revocation of Working Time Coronavirus) (Amendment) Regulations 2020- Under regulation 13(10) and 13(11) WTR workers are able to carry over 4 weeks of leave into the following two leave years if it was not reasonably practicable for a worker to take this leave in the year to which it related due to reasons related to Covid-19. From 1 January 2024 workers can no longer accrue Covid-19 carryover leave, however workers may still have leave to use, so workers will still be able to use all leave accrued prior to 1 January 2024 on or before 31st March. 2024.

* Reforms to employers’ consultation obligations for SME’s and in small transfers under TUPE Regulations 2006. The reforms 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 their employees directly if there are no existing worker representatives in place. Changes to the consultation process remain the same in instances where businesses do not have existing employee representatives to consult. Where employee representatives – including trade unions – are in place, employers will still be required to consult them.

NB When implemented the draft Regulations will not take effect in Northern Ireland, therefore the position on the calculation of holiday pay in Northern Ireland remains unchanged.