Employment law changes are on the horizon. On 8 November 2023, the Government published its response to the consultation paper Retained EU Employment Law which was published on 12 May 2023. A reduction in working time reporting requirements and more flexibility regarding TUPE consultation were announced. A simplification of annual leave entitlement and the calculation of holiday pay were announced at the same time.
The Retained EU Law (Revocation and Reform) Bill was published on 22 September 2022 (and received Royal Assent on 29 June 2023).
The purpose of the Bill was to end the status of retained EU law from 31 December 2023 (the sunset clause). On 10 May 2023, in a significant change of approach, the Government announced that the controversial sunset clause would be removed from the Bill. That announcement was accompanied by a Government policy paper about regulatory reform.
For more details see our earlier article here.
The policy paper was then shortly followed by the consultation paper Retained EU Employment Law.
The purpose of the consultation exercise was to put forward proposals to cut red tape for businesses while safeguarding the rights of workers. The Government had identified three areas for reform and where it could remove unnecessary bureaucracy. Specifically:
- Record keeping requirements under the Working Time Regulations
- Simplifying annual leave and holiday pay calculations in the Working Time Regulations
- Consultation requirements under the TUPE Regulations
There was a separate consultation exercise earlier this year (12 January 2023 to 9 March 2023) about the calculation of holiday entitlement for part-year and irregular hours workers. This followed the Supreme Court judgment in Harpur Trust v Brazel. The judgment resulted in those workers being entitled to more annual leave than part-time workers who worked the same number of hours.
The Government response to both consultations was published on 8 November 2023.
So, what has been announced?
Reducing the administrative burden of the Working Time Regulations
Following a 2019 judgment from the ECJ, there was some uncertainty about whether or not employers needed to keep records of all daily working hours of all workers. This was an increased record keeping requirement than that provided for in the Regulations. The Government has now clarified the position and confirmed that this will not be required.
The current obligation to ensure "adequate" and proportionate records in the context of a given workplace and particular working patterns remains. Updated guidance will be published in due course.
Currently, businesses cannot consult employees directly where they do not have employee representatives in place and must elect new ones.
The Government will remove this requirement so that there is more flexibility for employers to consult directly with employees. Accordingly, if there are no existing employee representatives in place:
- 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
Can consult directly with their employees. However, where employee representatives are already in place, employers will still be required to consult them.
The Government has expressly stated that it has no plans to allow employers to make changes to employees’ terms and conditions following a transfer other than for the existing “economic, technical or organisational reasons” involving changes in the workforce or workplace.
Holiday pay and entitlement reform
The legislation governing holiday entitlement and holiday pay is complex and views were sought on two proposals:
- Proposal one related to creating a single statutory leave entitlement, changes to the rate of holiday payment, calculating leave in the first year of employment and the consequences of removing the COVID-19 Regulations relating to leave
- Proposal two related to the introduction of rolled-up holiday pay
Single annual leave entitlement and rate of pay
There are two distinct “pots” of holiday entitlement in the Working Time Regulations:
- 4 weeks (which implemented the leave required by the Working Time Directive) paid at normal rate and
- An additional 1.6 weeks paid at basic rate
The Government proposed to create a single entitlement of 5.6 weeks paid annual leave on the basis that this would make it easier to calculate holiday pay and reduce the administrative burden on businesses.
However, the majority of respondents disagreed with this approach and the Government has decided not to introduce a single annual leave entitlement with a single rate of pay. It will retain the two distinct pots of annual leave and the two existing rates of holiday pay.
However, it will legislate to require that specific types of payments are to be included when calculating the normal rate of pay. These will be:
- Payments, including commission payments, intrinsically linked to tasks the worker is 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 paid regularly to a worker in the 52 weeks preceding the calculation
Although the Government will not be creating a single annual leave entitlement at this time, it will consider this “as part of any future reforms we do in this area“.
Calculating leave in the first year of employment
The Working Time Regulations provide that workers receive 1/12 of their annual entitlement on the first day of each month. This works well where someone has fixed hours or working patterns. The Government will introduce a similar accrual approach to calculate entitlement for irregular hours and part-year workers. Entitlement will accrue at 12.07% of hours worked in a pay period.
The Working Time Coronavirus Regulations 2020 permit the carry-over of up to four weeks leave into the following two leave years if workers are unable to take leave due to the effects of coronavirus. This provision will be removed.
From 1 January 2024, workers can no longer accrue COVID-19 carry-over leave but they will be able to use accrued leave up to and including 31 March 2024 (or receive a payment in lieu if employment ends on or before that date.)
Rolled-up holiday pay is where a worker receives an additional amount or enhancement with every payslip to cover their holiday pay, as opposed to receiving holiday pay only when they take annual leave. Currently, this is unlawful following a 2016 judgment of the ECJ. In reality, rolled-up holiday pay is used in many sectors because it is relatively simple to calculate holiday pay for irregular hours and part-year workers.
The Government had planned to introduce rolled-up holiday pay as an option for all workers. However, because of the feedback during the consultation exercise, the Government will only introduce it for irregular hours and part-year workers. Where there are two rates of holiday pay, the Government will legislate to ensure that employers using rolled-up holiday pay calculate it based on a worker’s total earnings in a pay period.
Calculating holiday entitlement for part-year and irregular hour workers
The Government consulted on whether to introduce a 52-week holiday entitlement reference period for part-year and irregular hours workers based on the proportion of time spent working over the previous 52 weeks. Views were also sought on whether to include weeks without work in a holiday entitlement reference period.
Feedback during the consultation exercise was that the 52-week reference period method would be difficult to administer and complex for workers to understand. Further feedback was that employers preferred using the 12.07% accrual method and thought it the fairest method of calculating holiday entitlement.
The Government will not introduce a 52-week reference period to calculate holiday entitlement. Instead, it will introduce legislation for an accrual method to calculate entitlement at 12.07% of hours worked in a pay period in the first year of employment and beyond. This accrual method will also apply to an agency worker who is either an irregular hours worker or a part-year worker.
The Government will define in legislation what it means by irregular hours and part-year workers. The legislation will also deal with the accrual of annual leave for these workers when they have been on family-related leave or sick leave and this will introduce a 52-week reference period.
What happens next?
On 8 November 2023, the Government published the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023.
These will come into force on 1 January 2024 and will amend the Working Time Regulations 1998 and Transfer of Undertakings (Protection of Employment) Regulations 2006 in those areas covered by the consultation response.
In relation to accrual of leave for an irregular hours or a part-year worker, the Regulations apply to leave years beginning on or after 1 April 2024.
In relation to the new TUPE consultation provisions, these will apply to a TUPE transfer which takes place on or after 1 July 2024.
Note that the 2023 Regulations will also “restate” EU case law that permits the carry-over of annual leave when a worker has been on family-related or sick leave.
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