Upcoming New Year Updates: Holiday pay, TUPE and working time changes for atypical workers

The government has published a draft statutory instrument titled The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, which contains various amendments to the law on TUPE, working time and holiday pay, which signifies a major change in the approach to rolled-up holiday pay for atypical workers.

The aim of the Regulations are to:

1. reduce the time-consuming reporting requirements under the Working Time Regulations.
2. simplify annual leave and holiday pay calculations.
3. streamline the regulations that apply when a business transfers to a new owner.

These changes are likely to come into force on 1 January 2024. Therefore, employers must understand what this means concerning record keeping, holiday pay, and entitlement.

Record Keeping

The Regulations remove the requirement for employers to keep a detailed record of the duration of time worked each day by each worker if the employer can demonstrate compliance in some other way. The government viewed the previous requirement as disproportionate, so the regulations aim to cut down the administrative burden on businesses concerning this requirement. 

Holidays pay calculations for atypical workers

The regulations provide a new method of holiday accrual for atypical workers following the confusion brought about by the Supreme Court’s decision in Harpur Trust v Brazel last year, which resulted in part-year workers having more holiday entitlement than part time workers who worked the same number of hours on an annual basis.

From next year, rolling up holiday pay will be lawful (again) for part-year workers and individuals working irregular hours. The accrual method to calculate holiday entitlement and pay will be 12.07% of hours worked in a pay period. This does not take away the right to request a holiday but essentially means that it will not be paid when it is taken. This does not affect how holiday entitlement should be calculated for regular hours workers.

The Regulations also permit employers to use a new method for calculating holiday entitlement for irregular hours workers and part year workers who are on long term sick leave or family leave, including the use of a 52-week reference period.

What is an irregular or part year worker?

A worker will be an irregular hours worker if, in that holiday year, the number of paid hours they work in each pay period during the term of their contract is wholly or mostly variable. This may, therefore, catch certain agency workers, some variable hours workers, and zero hours workers.

A worker will be a part-year worker if, in that holiday year, they are only required to work part of the year under the terms of their contract, and there are periods within that year of at least a week which they are not required to work and are not paid for. This is therefore likely to catch seasonal workers and some term time only workers.

Holiday pay

Normal remuneration for the purposes of holiday pay must include commission and other payments (such as regular overtime payments). This means holiday pay will become more expensive for those not currently including those elements.

The rules around ‘normal remuneration’ still apply to the 4-week EU-derived portion but will not apply to the 1.6 weeks afforded by UK law, but to keep calculations simple, many employers choose to pay holidays according to the normal remuneration rules across the entire 5.6 weeks of holiday entitlement.

For those employers looking to utilise rolled-up holiday pay, they should ensure that they are clear on payslips what portion is normal pay and what portion represents the rolled-up holiday portion and ensure that their workers understand that they will not be paid if they decide to take their holidays later.

Holiday carry over

EU case law is being enshrined into UK law to allow the carry over of:

• all statutory annual leave to the following year when a worker is unable to take their leave due to being on family related leave.
• Regulation 13 leave (4 weeks per year) for a maximum of 18 months where a worker is unable to take their leave due to sickness; and
• Regulation 13 leave where the worker has not been given opportunity to take the leave or the employer has failed to inform them that any leave not taken and which cannot be carried over will be lost.

TUPE consultations

The Regulations allow small businesses (with fewer than 50 employees) doing TUPE transfers of any size and businesses of any size undertaking a small transfer (of fewer than 10 employees) to consult with their employees directly if there are no existing representatives in place.

Conclusion

The changes are likely to have the most effect on those employers who utilise irregular hours workers extensively and those in the sectors who engage seasonal or part-year workers. These employers have often had to grapple with how to calculate holiday for these types of workers and when holiday pay should be paid. The simplified accrual method and removal of the prohibition on paying rolled up holiday pay for such workers should make the process smoother.

If you have any questions or would like support in calculating holiday pay for atypical workers and have an appropriate fit for your business policies, please get in touch with the BLHR & Employment Team. We will be happy to discuss how we can help, including under our fixed fee BLHR service.