On 29 June 2023, the Retained EU Law (Revocation and Reform) Act 2023 (REUL) received Royal Assent and brought with it significant changes to employment law. That, along with the Government’s decision to overturn the decision of the Supreme Court in Harpur Trust v Brazel, means some significant changes for the Working Time Regulations (WTR) . In this feature, Stacie Cheadle, Croner-i employment law researcher and writer looks at what these changes are.
Background
From 1 January 2024 REUL will mean that higher UK courts will no longer be bound by EU case law. As a number of important rights relating to holiday are derived from this case law, to preserve them the Government put forward proposals to insert these rights into the WTR. Public consultations were held on these changes, as well as overturning the effect of Harpur Trust v Brazel.
The outcome of these consultation periods led to regulations that introduce various changes to the law. The Draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023are intended to implement the proposed changes. Some of these changes will be introduced from 1 January 2024, and others from 1 April 2024.
Changes that will apply from 1 January 2024
Definitions
To provide clarity for employers as to the application of the law, definitions for two key terms have been added to the Working Time Regulations 1998 (WTR). These are as follows.
Irregular
“The number of paid hours they [the worker] will work in each pay period during the term of their contract is, under the terms of the contract, is wholly or mostly variable.
If worker has more than one contract with the same employer, whether their hours are wholly or mostly variable will be looked at in the round.”
Part-year
“Under the terms of their [the worker] 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.”
Holiday pay and normal pay
Holiday entitlement is made up of two elements. Four weeks (derived from EU law) and 1.6 weeks (which was added by the UK Government). Following EU case law that requires the four weeks EU holiday entitlement to be paid at the “normal” pay rate (including elements such as commission and overtime), and the remaining 1.6 weeks at the “basic” pay rate, the pay for those two separate portions is different, which has caused much confusion for employers over time. As this difference stems from EU case law, which higher courts will no longer be bound by from 1 January 2024, changes will be made to the WTR to preserve this difference.
From 1 January 2024 the draft regulations will introduce clarification of what is included in the calculation of normal pay as follows.
Payments, including commission payments, intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out.
Payments for professional or personal status relating to length of service, seniority or professional qualifications.
Payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation.
Employers will therefore need to apply this to holiday pay for employees whose pay includes these payments.
Covid emergency rules
Emergency rules on annual leave were implemented in 2020, which allowed for carry over of four weeks of leave into the next two leave years where it was not reasonably practicable for a worker to take that leave because of Covid. This right was added into the WTR via regulations 13(10) and 13(11).
This right will be repealed, and from 1 January 2024 workers will no longer accrue covid carryover leave. For those that still have this carried over leave outstanding, they must use it on or before 31st March 2024. This does not affect the general right of carry over which applies to 1.6 weeks of leave.
Carry-over of annual leave after sickness/maternity leave
Another right that will be impacted by UK courts no longer being bound by EU case law is that of carrying over annual leave where the worker has been unable to take it due to sickness or statutory leave. Once again, so that this right is not lost, the Government has legislated for this to be included in the WTR.
Carry-over will be permitted under these changes in the following circ*mstances.
Where a worker was unable to take holiday due to being on maternity leave or other statutory leave.
Where a worker was unable to take holiday due to sickness.
Where the employer has failed to recognise a right to holiday, or a right to paid holiday.
Where the employer has failed to give the worker a reasonable opportunity to take holiday or has failed to encourage them to do so.
Where the employer fails to inform the worker that holiday not taken will be lost at the end of the leave year.
When the worker has been on sick leave, their right to carry over will be limited to the four weeks derived from EU law, as it is presently under the case law. They can carry over this four weeks of leave for up to 18 months after the end of the leave year in which it was accrued (for example, a worker who was off sick for all 2023, can take four weeks over to end of June 2025).
When the employee has been on statutory leave, the full 5.6 weeks can be carried over into the next annual leave year.
Holiday entitlement and accrual calculations
In order to reverse the current position on holiday accrual and entitlement, which arose as a result of the Harpur Trust v Brazel case, the law will be changed for "irregular hours workers" and "part-year workers", including certain agency workers, by creating their own separate regulations within the WTR, regulations 15B to 15F. These regulations will make it so that holiday for these workers will accrue based on 12.07% (which represents statutory annual leave entitlement (5.6 weeks) expressed as a percentage of the number of potential working weeks in a year (46.4 weeks)) of the hours worked in the previous pay period. This will apply only to irregular hours and part year workers, and to leave years beginning on or after 1 April 2024. Employers will be able to apply this calculation for accrual beyond the first year of employment for irregular hours and part year workers.
The updated regulations will also provide a calculation to determine holiday accrual during sickness absence and statutory leave for irregular hours and part year workers. Under these new rules, employers will have to calculate average hours worked per week in the previous 52 weeks before leave, and then use the answer to find 12.07%.
Rolled-up holiday
Strictly speaking under EU case law, the use of rolled-up holiday pay is not permitted, although some businesses in the UK use it. Its use was then effectively banned under the Harpur Trust v Brazel decision of the Supreme Court when it held that the method of using 12.07% to calculate accrual was not compliant with the law.
Through the changes to be made to the WTR, for leave years starting on or after 1 April 2024, rolled-up holiday will be permitted for irregular hours and part-year workers only. This development means that employers of those types of workers will have the choice whether to “roll up” holiday pay or not.
Employers that decide to use this method must uplift pay by at least 12.07% (for statutory minimum holiday, more if the holiday entitlement is more generous) each pay period. They must also include a separate section on the payslip which states how much holiday pay is included, and ensure that the worker does actually take the leave they are being paid for.
Conclusion
The changes outlined above will mean that employers have to review their holiday policies and processes, to ensure that they align with the changed law. Probably the most significant transition will be around implementing the 12.07% calculation, which some employees may not understand. It will therefore need to be explained in clear terms where this figure comes from and what it means for them. Employers hoping to introduce rolled up holiday pay will also have to do this, as responses to the government consultation on introducing this revealed many people do not understand how this works.
Another thing to bear in mind is that whilst the law is changing, this will not be reason enough to force changes to holiday for employees where the current terms remain legal and may even be more generous than required under the law. Any changes to be made to contractual holiday be made only after consultation with workers, and when their agreement is confirmed.
