The government has recently published its much-anticipated response to the key employment law consultations conducted earlier this year. As part of the announcements, the government will reform holiday pay for irregular and part-year workers and introduce rolled-up holiday pay.
The Consultation
On the 12th of May 2023, the government began a consultation on areas of retained EU law which had been identified as areas due for review following Brexit, specifically:
- Simplifying annual leave and holiday pay calculations in the Working Time Regulations
- Record-keeping requirements under the Working Time Regulations
- Consultation requirements under the Transfer of Undertakings (Protection of Employment) regulations (TUPE)
The consultation concluded on the 7th of July 2023; you can read the full consultation on the government’s website.
Holiday pay for irregular hours and part-year workers
As well as simplifying calculations, the Department for Business and Trade said it would allow ‘rolled up’ holiday pay for those who work irregular hours, which means employers can include an amount for holiday pay on top of the hourly rate in regular pay packets. The draft legislation follows confusion that arose from the Supreme Court’s decision in the Harpur Trust versus Brazel case last year. The Supreme Court judgement resulted in part-year workers receiving different pro-rata amounts of holiday entitlement than part-time workers who worked the same number of hours annually. To make the approach to holiday entitlement and pay for irregular hours workers easier and to tackle this anomaly, the government has introduced a 12.07% accrual method.
Holiday pay must include overtime and commission
Employees currently have two separate holiday entitlements:
- Four weeks’ leave based on EU law and
- An extra 1.6 weeks’ leave based purely on UK law.
According to EU case law, the four weeks’ EU leave must be paid at a worker’s ‘normal’ pay, including regular commission and overtime in the calculation. However, for most workers, the additional 1.6 weeks leave can be paid at basic pay only. The government has scrapped plans to merge the two entitlements into one single pot of 5.6 weeks annual leave and instead keep the two distinct pots of annual leave and their associated minimum rates of pay.
The regulations, however, do state that, from now on, pay for the four-week EU-based leave entitlement must include the following:
- Payments for personal or professional status relating to seniority, length of service or professional qualifications.
- Payments which are intrinsically linked to the performance of tasks which the worker must carry out as part of their contract, including commission payments.
- Other payments, including overtime payments, which have been regularly paid to the worker in the past 52 weeks.
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