The Government has announced proposals to simplify the rules around worker holiday entitlement which has become a complex and difficult area of practice for HR Departments and employment lawyers.
Case decisions from the European Court of Justice and other legal developments have meant that the rules for calculating leave for those workers with irregular hours, zero hours workers, or those with variable pay are very difficult.
Post Brexit, the Government now has the latitude to make changes, and proposals to do so are set out in the Retained EU Law (Revocation and Reform) Bill and the accompanying consultation on Retained EU employment law reform.
Proposals
1. Combining annual leave entitlements
Currently, workers are entitled to 5.6 weeks leave but this is a combination of the entitlement under regulation 13(1) of the Working Time Regulations (WTR) to a minimum of 4 weeks annual leave per year (derived from the EU Working Time Directive) (Reg 13(1) leave) plus the entitlement under regulation 13A of the WTR to a further 1.6 weeks’ annual leave per year (which was introduced by the UK Government) (Reg 13A leave).
For the Reg13(1) leave, when calculating holiday pay this should include guaranteed commission, bonuses, and regular overtime and it cannot be carried over unless the worker is on long-term sick leave, maternity, paternity, or other parental leave.
Whereas Reg 13A leave needs only to be paid at a basic rate and can be carried over if there is a written agreement between the employer and employee.
The WTRs do not specify which type of leave comes first so this can be an issue where employees have used some but not all of their leave entitlements.
The proposal is that the leave entitlements are combined with one set of rules applying across the board. The consultation does not state what rules would apply but it is hoped that these would be simpler.
2. ‘Rolled-up’ holiday pay
Historically, it was common practice for employers to pay ‘rolled up’ holiday pay to atypical workers, usually by adding 12.07% on top of the hourly wage. This would be received by workers whether they took holiday or not.
Rolled-up holiday pay was then deemed unlawful under the WTR as it could deter workers from taking their holiday. Employers were obliged to use an average of the preceding 52 working weeks’ pay to calculate holiday pay meaning in some cases, employees earned more for holiday than their normal rate of pay.
The proposal is that rolling up would become permitted practice again and the consultation refers to the use of the 12.07% factor. This is likely to be popular with employers of atypical and zero-hours workers.
Comment
These proposals will be welcomed by many employers. However, it remains to be seen whether and when they will become law, and for the calculation of leave entitlements, the detail will be really important as it is the complexity of the current system which is often the biggest problem. The consultation is due to close on 7 July 2023.
In addition, many employers will have spent time and effort re-organising their holiday pay arrangements in light of developments in the law around the WTR (most recently as a result of the Brazel case) and they may begrudge further changes because of the work this entails even if the aim is to simplify or the overall costs are reduced.
How can we help?
Laura Kearsley is a Partner in our expert Employment Law team.
If you would like any advice in relation to the subjects discussed in this article, please contact Laura or another member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online enquiry form.
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