Government confirms changes to TUPE, the Working Time Regulations and holiday pay calculations

On 8 November 2023, the government published its response to two consultations: the consultation on the proposed reforms to retained EU employment law and the consultation on calculating holiday entitlement for part-year and irregular hours workers. In its response, the government has confirmed that its proposed amendments to the Transfer of Undertakings (Protection of Employment) Regulation 2006 (TUPE), the Working Time Regulations and holiday pay for part-time and irregular hours workers will go ahead. On the same day, the government published a Draft Statutory Instrument (The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023) which will implement these changes and is due to come into force on 1 January 2024.

The Regulations outline the following changes (with effect from 1 January 2024):

Holiday pay

For part-year and irregular hours workers (which may include some agency workers), employers will have the option to use rolled-up holiday pay. This means employers can pay those workers an additional sum based on hours worked in respect of holiday pay each pay period, regardless of whether any holiday has been taken during that period. In essence, this ends the requirement to pay such workers holiday pay when the holiday is taken.

The method for calculating the rolled-up amount will be 12.07% of the pay for the hours worked in a pay period. This is likely to be beneficial to employers from an administrative and employee relations perspective in relation to calculating irregular workers’ holiday pay. The amount should be clearly identified on pay slips to ensure employees are aware they are receiving their holiday pay.

In addition, the government confirmed that the plan to pursue a single annual leave entitlement (of 5.6 weeks per year) will not proceed. Instead, the two statutorily distinct pots of annual leave entitlement and rates of holiday pay (4 weeks’ annual leave at “normal” pay and 1.6 weeks’ additional leave at basic pay) will continue.  This means the arrangements many employers have in place can continue. The statutory instrument also clarifies what must be included in normal pay for holiday pay purposes. Therefore, employers will need to ensure their current arrangements meet these requirements.

Harpur Trust v. Brazel

The Regulations also propose a change to the calculation of the number of days holiday to which part-year and irregular hours workers will be entitled. The regulations will see a return to the method used widely before the Supreme Court decision in Harpur Trust.  The Supreme Court held that the amount of leave for a part-year employee should not be pro-rated to make it proportional to that of a full-time employee.  A part-year worker who only worked two weeks a year would therefore be entitled to 5.6 weeks’ leave.  In practice, this meant holiday pay for part-year employees was often proportionately higher than that of full-time employees and that using 12.07% to calculate holiday pay resulted in a significant underpayment.

The new regulations will mean that, instead of an entitlement to 5.6 actual weeks’ holiday irrespective of the number of days or weeks worked, part-year and irregular hours workers will accrue leave on the last day of each pay period at the rate of 12.07% of the number of hours worked during that pay period.  Their maximum statutory accrual is capped at 28 days, although employers can, of course, offer more. The move back to a 12.07% accrual method means that both holiday entitlement and holiday pay will more closely relate to the hours that part-year and irregular hours workers actually work in their leave year.

Working Time Regulations

The government has also confirmed that its proposal to remove the requirement for employers to have a system in place to monitor the daily working time of all workers will also proceed. However, this will only apply where employers can otherwise maintain adequate records to demonstrate compliance with the Working Time Regulations. This will be good news to employers as it means they can, in most cases, simply continue to follow the current and less onerous record-keeping requirements.

TUPE

Lastly, the government has confirmed that employers’ consultation requirements under TUPE are to be amended for organisations with fewer than 50 employees or, for any size business, where fewer than 10 employees are being transferred. In these instances, employers will be able to consult directly with employees rather than employee representatives if there are no existing employee representatives or recognised unions in place.

Employers should consider their practices in light of the government’s response and Draft Statutory Instrument and make any necessary changes in advance of the 1 January 2024 implementation date. In particular, employers may wish to review the way they manage holiday pay for part-year and irregular hours workers and decide if they want to utilise the new flexibility. Many employers are likely to welcome these changes as they simplify administrative processes and provide more options to meet legal requirements.