In response to consultations held in early 2023 on holiday pay, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and the Harpur Trust v Brazel ruling, the government has proposed a number of reforms and published a draft statutory instrument containing the relevant amendments.

These amendments will affect:

• Working time record keeping
• Holiday pay, and
• Consultation requirements under TUPE for small businesses.

The government has also published draft regulations which make various amendments to the Equality Act 2010, preserving certain employments rights derived from European law.

All of these changes are due to take effect on 1 January 2024.

Note that these changes will not apply in Northern Ireland. 

Working time record keeping

The government intends to remove the current uncertainty surrounding employers’ record keeping obligations, along with the related potential high cost of implementing a system of recording working hours under the Working Time Regulations (WTR).  Legal clarity on the record-keeping requirements will be provided and businesses will not have to keep a record of workers’ daily working hours.

Employers will still be required to keep adequate records to demonstrate compliance with the WTS. However, records will only need to be adequate and proportionate and will not need to include each worker’s daily working hours.

Holiday pay rates

Entitlement to holiday pay falls into two different ‘pots’ of paid annual leave each year under the Working Time Regulations 1998:

1. Four weeks’ leave under regulation 13, and
2. An additional 1.6 weeks’ leave under regulation 13A.

The two different ‘pots’ of leave entitlement can cause confusion because of differences in holiday pay rates for the different types of leave and different rules on carry-over to subsequent leave years.

The government’s consultation considered whether it would be simpler for each of these ‘pots’ of leave to be amalgamated into a single leave entitlement. However, the government has decided not to go ahead with this change.

Instead, the government will legislate to clarify what is considered ‘normal’ remuneration for the purpose of calculating holiday pay, to confirm that it includes payments such as commission payments, length of service payments and overtime payments.

The government says this will allow employers to continue with their current payroll systems which distinguish between the two different types of leave entitlement, whilst providing clarity on what elements of pay form part of ‘normal’ remuneration.

Rolled up holiday pay and 12.07% accrual method

‘Rolled up’ holiday pay refers to a payment structure under which a worker’s holiday pay is ‘rolled up’ into their wages, instead of being paid separately during their holiday. This practice was found to be contrary to European law because it might deter workers from taking holiday (because a worker would receive no pay when holiday was taken). However, the reality is that this practice is utilised by many employers, usually to make it easier to deal with holiday pay for workers undertaking irregular hours.

The government proposes to make rolled up holiday pay a lawful practice for irregular hours workers and part-year workers. It will define in legislation what is meant by irregular hours workers and part-year workers. It will also ensure that all employers that choose to use rolled-up holiday pay calculate it based on a worker’s total earnings in a pay period. Rolled-up holiday pay must be at least 12.07% of a worker’s pay.

The government will legislate to introduce an accrual method to calculate entitlement to holiday at 12.07% of hours worked in a pay period for irregular hours workers and part-year workers in the first year of employment and beyond (12.07% is used because this represents the proportion of a worker’s 5.6 weeks’ statutory annual leave in relation to the remaining 46.4 working weeks in a whole year). However, for workers on sick leave or other statutory leave, such as maternity leave, a 52-week reference period should be used.

Carry over of leave

The government is also restating various pieces of European case law in relation to carry over of annual leave: allowing carry over of annual leave where a worker is unable to take their leave due to family related leave or sickness.

Where irregular hours or part-year workers have been on family-related leave or sick leave, the government will legislate to introduce a 52-week reference period so employers can look back and work out an average of hours worked across that period to calculate their holiday entitlement.

Repeal of Covid-19 carry over regulations

The right to carry over up to 4 weeks’ leave where the employee has been unable to take it due to the effect of Coronavirus, will be removed. Any leave accrued before 1 January 2024 can, however, be used up until 31 March 2024.

Transfer of Undertakings (Protection of Employment) Regulations (TUPE)

Small businesses (with fewer than 50 employees) and businesses of any size undertaking a small TUPE transfer (of fewer than 10 employees) will be allowed to consult directly with their employees if there are no existing worker representatives in place. Note, however, that where employee representatives – including trade unions – are in place, employers will still be required to consult them.

Equality Act 2010 amendments

The government has also announced several amendments to the Equality Act 2010, intended to preserve certain employment protections originally derived from EU law. The amendments make no substantive changes to existing equalities protections.

Key amendments under the draft Equality Act 2010 (Amendment) Regulations 2023 include:

• Retention of the ‘single source’ comparator test for the purpose of equal pay claims;
• The right to claim indirect discrimination ‘by association’ with others; and
• The definition of disability to include a reference to a person’s ability to fully participate in working life on an equal basis with other workers (rather than the current definition which only refers to a person’s ability to carry out ‘day to day activities’).

A number of other amendments to the Equality Act 2010 will also preserve protections related to pregnancy, breastfeeding and maternity leave.

These changes will be effective from 1 January 2024. It is crucial that employers check over their policies and procedures to ensure that the above changes will be reflected. KBL’s Employment Team can assist with advice and assistance in ensuring that policies and procedures are up to date. Contact the team today on 01204 527777 or at enquiries@kbl.co.uk.