The Government recently published the draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (Regulations). These draft regulations, which are expected to come into force on 1 January 2024 without any major changes, aim to simplify holiday pay and annual leave calculations post-Brexit, time-recording requirements under the Working Time Regulations, and the TUPE transfer process.
The Regulations also confirm that certain EU-originated employment rights will be maintained despite the revocation of various EU laws next year. For example, employees will still have the right to 5.6 weeks of annual leave per year and the right to carry over annual leave in certain circumstances.
We’ve set out below what is changing under the Regulations (and what isn’t). The changes are likely to have the greatest impact on employers who use part-year or irregular hours workers, as the methods for calculating their holiday pay will be simplified.
Annual leave and holiday pay calculations
Following concerns that legislation and case law associated with the rights to paid annual leave had become overly complicated, the Government conducted two consultations on holiday pay earlier this year. As a result, the Government will implement the following changes, which aim to reduce paperwork and make compliance easier, without lowering workers’ protection:
1. Repeal of Covid regulations allowing carry-over leave
Covid regulations introduced in March 2020 allowed workers to carry over up to four weeks of annual leave into the next two leave years, if they couldn’t reasonably take their leave in the relevant year. These regulations will be repealed from 1 January 2024, so workers will no longer be able to accrue Covid carry-over leave. Workers must use any remaining leave they have carried over due to Covid by 31 March 2024.
2. Holiday entitlement for part-year workers should be pro-rated
Part-year workers are workers who are only required to work part of the year (and are only paid for the hours they work) but are employed for the full year. For example, some school workers or certain seasonal workers.
In a 2022 Supreme Court case (Harpur Trust v Brazel), the court held that holiday entitlement for part-year workers shouldn’t be pro-rated (therefore they are entitled to the full 5.6 weeks of statutory annual leave regardless of how many hours they work). This case created some confusion, as it meant that part-year workers would be entitled to a larger annual leave entitlement than part-time workers who work consistent hours across the year.
To address this discrepancy, under the Regulations annual leave entitlement for part-year workers and irregular workers will be calculated as 12.07% of the hours worked in each pay period. This will apply to leave years beginning on or after 1 April 2024 (and those workers won’t be able to earn more than a total of 28 days of annual leave per year). Regular hours workers will continue to accrue their leave in the same way as they do currently (they receive 1/12th of their entitlement in each month during the first year and pro-rated afterwards).
The Regulations also introduce a method for calculating maternity or other family-related leave for irregular-hours workers. This allows you to look back over the previous 52-week reference period, calculate the average hours worked across that period and ensure the amount of leave is proportionate to the time worked (you’ll need to include employed weeks where they didn’t work any hours in the 52-week period, but not weeks when they were on statutory leave).
3. Rolled up holiday pay (RHP) will be permitted
Under the Regulations, workers will now be able to receive holiday pay as an extra on each payslip (rather than receiving it when they take their holiday). Under EU law, this is unlawful, and payment must be made at the time leave is taken.
It’s your choice whether to use RHP – your workers can’t require you to do it. If you use RHP, a worker’s holiday pay will be paid as 12.07% of their total earnings within a pay period. You’ll have to pay the worker with each payslip (not when the leave is taken) and make sure you’re clear about which portion is normal pay and which portion is RHP. You should also make sure your workers understand they won’t be paid if they decide to take holidays later on.
These changes will apply for leave years beginning on or after 1 April 2024.
Record-keeping obligations
Under the Working Time Regulations 1998, employers must keep adequate records to show compliance with working time rules, including maximum weekly working time, rest breaks, length of night work and more. EU case law adds that employers must record the duration of time worked each day by each worker via an ‘objective, reliable and accessible system’.
The Government has decided that this latter obligation is too onerous and uncertain, and that the requirement will therefore no longer apply. This means that from 1 January 2024 you’ll simply need to keep ‘adequate records’ to demonstrate compliance with relevant working time requirements. These records may be kept in any format you think is appropriate, and you don’t have to record each worker’s daily working hours as long as you can otherwise demonstrate compliance with the regulations.
TUPE transfers
The TUPE regulations protect workers’ rights when the business they work for transfers to a new employer or changes owner, and/or the service they work for is transferred to a different provider. Under the current provisions, the old employer (the transferor) and the new employer (the transferee) must consult with the affected workforce before the TUPE transfer takes place, via existing representatives or (if there are no representatives in place) they must arrange for employees to elect a representative for consultation purposes.
Under the Regulations, from 1 July 2024 the Government will allow employers to consult directly with employees (rather than an employee representative) if their business is small (no more than 50 employees) or if the transfer involves no more than 10 employees (no matter what size the business is). This means the transferor and transferee don’t have to consult with employee representatives or arrange for representatives to be elected. Through these changes, the Government aims to make transfers easier and quicker for eligible businesses.
If you’re considering a TUPE transfer, you can use our toolkits to check you’re following the right process; these contain all the documents you need.
What do the Regulations state is staying the same?
The Regulations reiterate that various employment rights under EU law will continue to apply, including (but not limited to):
- The right to have two ‘pots’ of annual leave (workers receive 4 weeks of annual leave at their ‘normal remuneration’ and 1.6 weeks at their basic remuneration). However, what counts as ‘normal’ remuneration is more specifically defined in the Regulations to ensure clarity;
- The right to carry over holiday leave where the worker hasn’t been able to take it due to family-related leave or sick leave;
- The right to a maximum 48-hour working week; and
- The right to carry over holiday entitlement where the employer has failed to inform the worker of their right to paid annual leave.
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Marion joined Sparqa Legal as a Senior Legal Editor in 2018. She previously worked as a corporate/commercial lawyer for five years at one of New Zealand’s leading law firms, Kensington Swan (now Dentons Kensington Swan), and as an in-house legal consultant for a UK tech company. Marion regularly writes for Sparqa’s blog, contributing across its commercial, IP and health and safety law content.