On 8 November 2023, the Government published its long-awaited response to consultations regarding holiday pay and entitlement for part-year and irregular workers. In addition, it has laid out its proposals to make key changes to the law on both holiday pay and the Working Time Regulations within a draft statutory instrument (Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023) (“Regulations”) which will come into effect in due course.

The law regarding holiday pay and entitlement, particularly for part-year and irregular workers, has become a prevalent point of discussion following the Supreme Court ruling in the case of Harpur Trust v Brazel. The outcome of the case subsequently resulted in two consultations being launched in January and March 2023 respectively, aimed at addressing disparities in holiday pay and entitlement for atypical workers stemming from the Supreme Court’s judgment.

The proposed legislation is anticipated to come into force from 1 January 2024 and will give effect to the following changes, however, the provisions which relate to the accrual and payment of holiday pay for part year and irregular hours workers only relate to leave years which start on or after 1 April 2024, so the effect of the changes will take some time to come through and be seen in practice.

Part-Year and Irregular Workers

The new legislation will define both part-year and irregular workers in the following ways:

• Part-Year: “a worker is a part-year worker, in relation to a leave year, 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.”
• Irregular: “a worker is an irregular hours worker, in relation to a leave year, 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.”

Calculating Leave Entitlement

In accordance with the proposed Regulations, holiday accrual for part-year and irregular workers will be calculated based on 12.07% of the workers’ normal pay in reference to the number of hours that they have worked within the relevant pay period (contrary to the Harpur Trust ruling). In addition, the 52-week reference period which was initially proposed will no longer be implemented.

Removal of Regulations 13 and 13A WTR

The Regulations will also remove entitlement to leave under regulations 13 and 13A of the Working Time Regulations (“WTR”) for part-year and irregular workers (the provisions will still remain for those workers and employees who don’t fall within this category). In a departure from the WTR, a new entitlement will be created under regulation 15B under which annual leave will accrue at 12.07% and will also be calculated in hours as opposed to weeks.

Allowing ‘Rolled-up’ Holiday Pay

Further, the Regulations intend to permit the employers to pay ‘rolled-up’ holiday pay for part-year and irregular workers. Whilst this practice is currently used by some employers, for a significant period of time, it has been deemed to be unlawful on the basis that it was considered to create a disincentive to the taking of holiday. Rolled up holiday pay will not, however, be permitted for regular workers.

Other Amendments

The Regulations will also implement additional changes to the following areas:

• Combining Annual Leave Entitlement: The Government will no longer be merging the two existing holiday entitlements (4 weeks and 1.6 weeks) that workers are afforded under regulations 13 and 13A WTR and as such these will remain separate. The Government will insert a new provision into the WTR to explain what additional elements should be taken into account in determining what a “week’s pay” when calculating holiday pay, this change has come about because of the rules which allow the different leave under the WTR to be paid at different rates. The additional elements which will be included are:
• payments, including commission payments, where those payments are intrinsically linked to the performance of tasks which a worker is contractually obliged to do.
• payments for professional or personal status relating to length of service, seniority, or professional qualifications.
• other payments, such as overtime payments, which have regularly been paid to a worker in the previous 52 weeks.

The changes proposed reflect the domestic court decisions in relation to the calculation of holiday pay.

The statutory pay for regulation 13A leave will continue to be calculated as it has done previously in line with the “week’s pay” rules under the Employment Rights Act 1996 and WTR.

• Record Keeping: There will no longer be an obligation placed on employers to keep record of their workers’ working time, provided that they are able to demonstrate compliance with the WTR.
• Revoking Covid-19 Legislation: Legislation which was introduced during the allowing workers to carry over holiday that they were unable to take due to Covid19 will be removed. Workers who still have leave remaining in respect of this will be able to take this up to 31 March 2024.
• TUPE: Whist unrelated to holiday and the WTR, the outcome of the consultation also addressed that employers will not be required to inform and consult with employee representatives where the business has fewer than 50 employees, or where a small transfer of less than 10 employees is undertaken. Where there are no representatives in place, employers may, in these circumstances, consult directly with those employees who are affected.

The announced changes are likely to be welcomed by many employers who engage part-year and irregular workers due to the fact that it will alleviate the administrative burden currently placed on them by the calculation of holiday pay and leave entitlement. It is clear that the changes will also redress potential disparities in leave entitlement amongst workers subsequent to the Harpur Trust ruling, thus ensuring proportionality.

This blog was co-authored by Lydia Lambert and Simon Bloch.